FORM 10-KUNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(MarkFORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
þ ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended JUNE
30, 2002 -------------27, 2004OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
¨ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period fromto
-------- ---------Commission file number 1-1370
BRIGGS & STRATTON CORPORATION
----------------------------- (Exact(Exact name of registrant as specified in its charter)
A Wisconsin Corporation 39-0182330 ----------------------- -------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 12301 WEST WIRTH STREET WAUWATOSA, WISCONSIN 53222 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's
A Wisconsin Corporation 39-0182330 (State or other jurisdiction of
incorporation or organization)(I.R.S. Employer
Identification No.)12301 WEST WIRTH STREET
WAUWATOSA, WISCONSIN
53222 (Address of principal executive offices) (Zip Code) Registrant’s telephone number, including area code: 414-259-5333
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Title of Each Class
Name of Each
Exchange on Which Registered ------------------- ----------------------------------------- Common Stock (par value $0.01 per share) New York Stock Exchange Common Share Purchase Rights New York StockExchange on Which RegisteredCommon Stock (par value $0.01 per share) New York Stock Exchange Common Share Purchase Rights New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
[X]þ No[ ]¨Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of
registrant'sregistrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.[ ]þIndicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yesþ No¨
The aggregate market value of
voting stockCommon Stock held by nonaffiliates of the registrant was approximately$794,324,000$1,457,565,089 based on the reported last sale price of such securities as ofAugust 22, 2002.December 26, 2003, the last business day of the most recently completed second fiscal quarter.Number of Shares of Common Stock Outstanding at August
22, 2002: 21,645,984.25, 2004: 25,612,270.DOCUMENTS INCORPORATED BY REFERENCE
----------------------------------- Part of Form 10-K Into Which Portions Document of Document are Incorporated -------- ------------------------------------- Proxy Statement for Annual Meeting on October 16, 2002 Part III
Document
Part of Form 10-K Into Which Portions
of Document are Incorporated
Proxy Statement for Annual Meeting
on October 20, 2004Part III The Exhibit Index is located on page
42.50. BRIGGS & STRATTON CORPORATION
2002FISCAL 2004 FORM 10-K
-CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTSCautionary Statement on Forward-Looking Statements
Certain statements in
Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations may contain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. The words"anticipate," "believe," "estimate," "expect," "intend," "may," "objective," "plan," "seek," "think," "will"“anticipate,” “believe,” “estimate,” “expect,” “forecast,” “intend,” “may,” “objective,” “plan,” “project,” “seek,” “think,” “will” and similar expressions are intended to identify forward-looking statements. The forward-looking statements are based on Briggs &Stratton'sStratton’s current views and assumptions and involve risks and uncertainties that include, among other things: our ability to successfully forecast demand for our products and appropriately adjust our manufacturing and inventory levels; changes in our operating expenses; changes in interest rates; the effects of weather on the purchasing patterns of consumers and original equipment manufacturers (OEMs); actions of engine manufacturers and OEMs with whom we compete; the seasonal nature of our business; changes in laws and regulations, including environmental, pension funding and accounting standards; work stoppages or other consequences of any deterioration in our employee relations; work stoppages by other unions that affect the ability of suppliers or customers to manufacture; acts of war or terrorism that may disrupt our business operations or those of our customers and suppliers; changes in customer and OEM demand; changes in prices of purchased raw materials andparts;parts that we purchase; changes in domestic economic conditions, including housing starts and changes in consumer disposable income; changes in foreign economic conditions, including currency rate fluctuations; new facts that come to light in the future course of litigation proceedings which could affect our assessment of those matters; our ability to successfully integrate the Simplicity Manufacturing, Inc. acquisition; and other factors that may be disclosed from time to time in our SEC filings or otherwise. Some or all of the factors may be beyond our control. We caution you that any forward-looking statement reflects only our belief at the time the statement is made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made.PART I
ITEM 1. BUSINESS
ITEM 1. BUSINESS Briggs & Stratton is the
world'sworld’s largest producer of air cooled gasoline engines for outdoor power equipment. Briggs & Stratton designs, manufactures, markets and services these products for original equipment manufacturers (OEMs) worldwide. These engines are primarily aluminum alloy gasoline engines ranging from 3 to2531 horsepower.Additionally, through its wholly owned subsidiary,
Generac PortableBriggs & Stratton Power Products Group, LLC, Briggs & Stratton is a leading designer, manufacturer and marketer of portable generators, pressure washers and related accessories.On May 15, 2001, Briggs & Stratton acquired Generac Portable Products, Inc. Generac Portable Products, Inc. was merged with, and into Generac Portable Products, LLC (GPP) on June 30, 2002.Briggs & Stratton conducts its operations in two reportable segments: Engines and Power Products. Further information about Briggs &
Stratton'sStratton’s business segments is contained in Note 5 of the Notes to Consolidated FinancialStatementsStatements.The Company’s Internet address is www.briggsandstratton.com. The Company makes available free of charge (other than an investor’s own Internet access charges) through its Internet website the Company’s Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after it electronically files such material with, or furnishes such material to, the Securities and Exchange Commission. Charters of the Audit, Compensation, Nominating and Governance Committees; Corporate Governance Guidelines and code of business conduct and ethics contained in
Item 8 of this report. ENGINES GENERALthe Briggs &Stratton'sStratton Business Integrity Manual are available on the Company’s website and are available in print to any shareholder upon request to the Corporate Secretary.Engines
General
Briggs & Stratton’s engines are used primarily by the lawn and garden equipment industry, which accounted for
85%77% of fiscal2002 OEM2004 enginesales.sales to OEMs. Major lawn and garden equipment applications include walk-behind lawn mowers, riding lawn mowers and garden tillers. The remaining15%23% of OEM sales in fiscal20022004 were for use on products for industrial, construction, agricultural and other consumer applications, that include generators, pumps and pressure washers. Many retailers specify Briggs &Stratton'sStratton’s engines on the powered equipment they sell, and the Briggs & Stratton name is often featured prominently on a product despite the fact that the engine isjustonly a component. Briggs & Stratton engines are marketed under various brand names includingClassic(TM)Classic™,Sprint(TM)Sprint™,Quattro(TM)Quattro™,Quantum(R)Quantum®,INTEK(TM)INTEK™, I/C(R)C®, IndustrialPlus(TM)Plus™ andVanguard(TM)Vanguard™.In fiscal
2002,2004, approximately24%17% of Briggs &Stratton'sStratton’s net sales were derived from sales in international markets, primarily to customers in Europe. Briggs & Stratton serves its key international markets through its European regional office in Switzerland, its distribution center in the Netherlands and sales and service subsidiaries in Australia, Austria, Canada, China, the Czech Republic, England, France, Germany, Mexico, New Zealand, the Philippines, Russia, South Africa, Spain, Sweden andtheUnitedKingdom.Arab Emirates. Briggs & Stratton is a leading supplier of gasoline engines in developed countries where there is an established lawn and garden equipment market. Briggs & Stratton also exports engines to developing nations where its engines are used in agricultural, marine, construction and other applications. More detailed information about our foreign operations is in Note 5 of the Notes to Consolidated Financial Statements.Briggs & Stratton engines are sold primarily by its worldwide sales force through direct calls on customers. Briggs &
Stratton'sStratton’s marketing staff and engineers in the United States provide support and technical assistance to its sales force.Briggs & Stratton also manufactures replacement engines and service parts and sells them to sales and service distributors. Briggs & Stratton owns its principal international distributors. In the United States the distributors are independently owned and operated. These distributors supply service parts and replacement engines directly to approximately
35,00039,000 independently owned, authorized service dealers throughout the world. These distributors and service dealers implement Briggs &Stratton'sStratton’s commitment to reliability and service.CUSTOMERSCustomers
Briggs &
Stratton'sStratton’s engine sales are made primarily to OEMs. Briggs &Stratton'sStratton’s three largest engine customers in each of the last three fiscal years were AB Electrolux (principally its Electrolux Home Products Group), MTD Products Inc. and Murray Inc. (owned by Summersong Investments, Inc.). Sales to each of these customers were more than10%9% of net sales in fiscal2002, 2001,2004, 2003 and2000.2002. Sales to all three combined were 42%, 41% and 47% of consolidated net sales in fiscal 2004, 2003 and 2002,46% of net sales in fiscal 2001 and 45% of net sales in fiscal 2000.respectively. Under purchasing plans available to all of its gasoline engine customers, Briggs & Stratton typically enters into annual engine supply arrangements with these large customers.1Over the years, sales of lawn and garden equipment by mass merchandisers have increased significantly in the United States, while sales by independent distributors and dealers have declined.Briggs & Stratton believes that in fiscal
20022004 more than75%80% of all lawn and garden equipment sold in the United States was sold through mass merchandisers such as Sears, Roebuck and Co. (Sears), The Home Depot, Inc. (The Home Depot), Wal*Mart Stores, Inc. (Wal*Mart) andLowe'sLowe’s Home Centers, Inc.(Lowe's)(Lowe’s). Given the buying power of the mass merchandisers, Briggs & Stratton, through its customers, has continued to experience pricing pressure. Briggs & Stratton expects that this pricing trend will continue in the foreseeable future. Briggs & Stratton believes that a similar trend has developed for its products in industrial and consumer applications outside of the lawn and garden market.COMPETITION The small gasoline engine industry is highly competitive.Competition
Briggs &
Stratton'sStratton’s major domestic competitors in engine manufacturing are Tecumseh Products Company (Tecumseh), Honda Motor Co., Ltd. (Honda), Kohler Co. and Kawasaki Heavy Industries, Ltd. (Kawasaki).Also, a domestic lawn mower manufacturer, The Toro Company under its Lawn-Boy brand, manufactures some of its own engines. EightSeveral Japanese small engine manufacturers, of which Honda and Kawasaki are the largest, compete directly with Briggs & Stratton in world markets in the sale of engines to other OEMs and indirectly through their sale of end products. Tecumseh Europa S.p.A., located in Italy, is a major competitor in Europe.Briggs & Stratton believes it has a significant share of the worldwide market for engines that power outdoor equipment.
Briggs & Stratton believes the major areas of competition from all engine manufacturers include product quality, brand strength, price, timely delivery and service. Other factors affecting competition are short-term market share objectives, short-term profit objectives, exchange rate fluctuations, technology, product support and distribution strength. Briggs & Stratton believes its product value and service reputation have given it strong brand name recognition and enhance its competitive position.
SEASONALITY OF DEMANDSeasonality of Demand
Sales of engines to lawn and garden
equipment manufacturersOEMs are highly seasonal because ofretail customerconsumer buying patterns. The majority of lawn and garden equipment is sold during the spring and summer months when most lawn care and gardening activities are performed. Sales of lawn and garden equipment are also influenced by weather conditions. Sales in Briggs &Stratton'sStratton’s fiscal third quarter have historically been the highest, while sales in the first fiscal quarter have historically been the lowest.In order to efficiently use its capital investments and meet seasonal demand for engines, Briggs & Stratton pursues a relatively balanced production schedule throughout the year. The schedule is adjusted to reflect changes in estimated demand, customer inventory levels and other matters outside the control of Briggs & Stratton. Accordingly, inventory levels
aregenerallyhigherincrease during the first and second fiscal quarters in anticipation ofincreasedcustomer demand. Inventory levels begin to decrease as sales increase in the third fiscal quarter. This seasonal pattern results in high inventories and low cash flow for Briggs & Stratton in the second and the beginning of the third fiscal quarters. The pattern results in higher cash flow in the latter portion of the third fiscal quarter and in the fourth fiscal quarter as inventories are liquidated and receivables are collected.MANUFACTURINGManufacturing
Briggs & Stratton manufactures engines and parts at the following locations: Wauwatosa, Wisconsin; Murray, Kentucky; Poplar Bluff and Rolla, Missouri; Auburn, Alabama; Statesboro, Georgia; and
Statesboro, Georgia.Chongqing, China. Briggs & Stratton has a parts distribution center in Menomonee Falls, Wisconsin.Briggs & Stratton manufactures a majority of the structural components used in its engines, including aluminum die castings, carburetors and ignition systems. Briggs & Stratton purchases certain parts such as piston rings, spark plugs, valves, ductile and grey iron castings, zinc die castings and plastic components, some stampings and screw machine parts and smaller quantities of other components. Raw material
purchases consist primarily of aluminum and steel. Briggs & Stratton believes its sources of supply are adequate.
2Briggs & Stratton has joint ventures with Daihatsu Motor Company for the manufacture of engines in Japan
with Puling Machinery Works and Yimin Machinery Plant for the production of engines in Chinaand with Starting Industrial of Japan for the production of rewind starters in the U.S.Briggs & Stratton has a strategic relationship with Mitsubishi Heavy Industries (MHI) for the global distribution of air cooled gasoline engines manufactured by MHI in Japan under Briggs &
Stratton's Vanguard(TM)Stratton’s Vanguard™ brand.POWER PRODUCTS GENERAL In May 2001,Power Products
General
Briggs & Stratton
acquired GPP. GPP'sPower Products Group, LLC’s (BSPPG) two principal product lines are portable and home stand-by generators (“generators”) and pressure washers.GPPBSPPG sells its products through multiple channels of retail distribution, including home centers, warehouse clubs, mass merchants and independent dealers.Under the Craftsman(TM) label, GPP or its predecessor has been one of Sear's major suppliers of portable generators (since 1961) and pressure washers. GPP is also a core supplier of products to The Home Depot and Lowe's. In addition, GPP is a core supplier for many of the leading retail home centers and do-it-yourself retailers throughout the United States, Canada and Europe. GPPBSPPG has assembled a comprehensive after-sales service network in North America for
portablegenerators and pressure washers comprised of approximately3,0004,300 authorized independent dealers.GPPBSPPG maintains its independent dealer network for the purpose of providing the after-sales service capability that supports its products.To support
GPP's European power generatorits international business,local sales offices have been established inBSPPG has leveraged theUnited Kingdom, Germany and Spain. CUSTOMERS GPPexisting Briggs & Stratton worldwide distribution network.Customers
BSPPG sells to consumer home centers and warehouse clubs, as well as mass merchants and independent dealers. Historically,
GPP'sBSPPG’s major customers have beenCostco, Lowe's,Lowe’s, The Home Depot and Sears. Other U.S. retail customers includeB.J.'s Wholesale Club, Sam's Club,Tractor Supply Company, Tru-Serv Incorporated, andTru-Serv Incorporated. COMPETITIONWal*Mart.Competition
The U.S. engine powered
toolsequipment industry (the “power products industry”), in which Briggs & Stratton competes ishighly concentrated withserved by approximately five competitors. The principal competitive factors in theengine powered toolspower products industry include price, service, product performance, technical innovation and delivery. In the manufacture and sale ofportablegenerators,GPPBSPPG competes primarily with Coleman Powermate(a division of The Coleman Company, Inc., an affiliate of Sunbeam Corporation)and Honda. In the manufacture and sale of pressure washers,GPPBSPPG competes primarily with DeVilbiss Air Power Company,(an affiliate of Pentair, Inc.)and to a lesser extent with Coleman Powermate, Alfred Karcher GmbH & Co. and Campbell Hausfeld(an affiliate(part of Berkshire Hathaway, Inc.).GPPBSPPG believes it has a significant share of the North American market for
portablegenerators and consumer pressure washers.SEASONALITY OF DEMANDSeasonality of Demand
Sales of
GPP'sBSPPG’s products are subject to seasonal patterns. Due to seasonal and regional weather factors, sales of pressure washers and related working capital requirements are typically higher during the fiscal third and fourth quarters than at other times of the year. Sales of generators are typically higher during the summer and fall tropical stormseason. The residential and commercial construction markets are sensitive to cyclical changes in the economy. MANUFACTURING GPP'sseasons.Manufacturing
BSPPG’s U.S. manufacturing facility is located in Jefferson, Wisconsin.
GPPBSPPG producesportablegenerators and pressure washers at this location.GPPBSPPG manufactures core components for
portablegenerators,including alternators,where such integration improves operating profitability by providing lower costs.3GPPBSPPG purchases engines from its parent, Briggs & Stratton, as well as from Generac Power Systems, Inc. and Honda.
GPPBSPPG has not experienced any difficulty obtaining necessary purchased components.To service
GPP's EuropeanBSPPG’s international customer base more effectively,GPPBSPPG designs and assembles itsEuropeaninternational products at its Jefferson, Wisconsin location and through a contract manufacturing arrangement inits Cheshire, England facility. This facility imports alternators, engines and other components and assembles portable generators to meet European product requirements. CONSOLIDATED GENERAL INFORMATIONthe Netherlands.Consolidated
General Information
Briggs & Stratton holds patents on features incorporated in its products; however, the success of Briggs &
Stratton'sStratton’s business is not considered to be primarily dependent upon patent protection. Trademarks, licenses, franchises and concessions are not a material factor in Briggs &Stratton'sStratton’s business.For the years ending June 27, 2004, June 29, 2003 and June 30, 2002,
July 1, 2001 and July 2, 2000,Briggs & Stratton spent approximately$23.7$25.9 million,$21.5$26.4 million and$24.3$23.7 million, respectively, on research activities relating to the development of new products or the improvement of existing products.The average number of persons employed by Briggs & Stratton during the fiscal year was
7,019.7,438. Employment ranged from a low of6,1927,094 in September20012003 to a high of7,3717,732 inDecember 2001. EXPORT SALESJune 2004.Export Sales
Export sales for fiscal 2004, 2003 and 2002
2001were $336.7 million (17% of net sales), $401.2 million (24% of net sales) and2000 were$365.5 million (24% oftotal sales), $325.6 million (25% of total sales) and $358.1 million (23% of totalnet sales), respectively. These sales were principally to customers in European countries. Refer to Note 5 of Notes to Consolidated Financial Statements for financial information about geographic areas. Also, refer to Item 7A of this Form 10-K and Note1112 of Notes to Consolidated Financial Statements for information about Briggs &Stratton'sStratton’s foreign exchange risk management.ITEM 2. PROPERTIES
ITEM 2. PROPERTIES The corporate offices and one of Briggs &
Stratton'sStratton’s engine manufacturing facilities are located ina suburb of Milwaukee,Wauwatosa, Wisconsin. Briggs & Stratton also has engine manufacturing facilities in Murray, Kentucky; Poplar Bluff and Rolla, Missouri; Auburn, Alabama and Statesboro, Georgia. These are owned facilities containing 3.6 million square feet of office and production area. Briggs & Stratton occupies warehouse space totalling approximately400,000380,000 square feet ina suburb of Milwaukee,Menomonee Falls, Wisconsin under a reservation of interest agreement. Briggs & Stratton also leases warehouse space in the localities of its engine manufacturing facilities, except Wisconsin, totalling810,000500,000 square feet.GPP's officesBSPPG’s office and domestic manufacturing
facilitiesfacility are located in Jefferson,Wisconsin. GPP also has a manufacturing facility in Cheshire, England. These are owned facilities containingWisconsin and contain 250,000 square feet of office and production area.GPPBSPPG leases warehouse spacetotalling 210,000totaling 625,000 square feet in three communities in Wisconsin.The engine business with the OEMs is seasonal, with demand for engines at its height in the winter and early spring. Engine manufacturing operations run at capacity levels during the peak season, with many operations running three shifts. Engine operations generally run fewer shifts in the summer, when demand is weakest and production
is considerably under capacity.levels are lower. During the winter, when finished goods inventories reach their highest levels, owned warehouse space may be insufficient and capacity may be expanded through rented space.Excess warehouse space exists in the spring and summer seasons.Briggs & Stratton leases approximately
300,000360,000 square feet of space to house its foreign sales and service operations in Australia, Austria, Canada, China, the Czech Republic, England, France, Germany, Mexico, the Netherlands, New Zealand, the Philippines, Russia, South Africa, Spain, Sweden, Switzerland and United ArabEmirates and the United Kingdom.Emirates.Briggs &
Stratton'sStratton’s owned properties are well maintained. Briggs & Stratton believes that its owned and leased facilities are adequate to perform its operations in a reasonable manner.4ITEM 3. LEGAL PROCEEDINGS
ITEM 3. LEGAL PROCEEDINGS Briggs & Stratton
has announced the voluntary recall of approximately 162,000 engines used on Fun Karts. Fuel from the engine can spill out if the Fun Kart overturns making serious injury a possibility. The recall only appliesis subject toengines that are installed on Fun Karts,various unresolved legal actions whichlook and ride like go carts, but were sold for personal use. The models includedarise in therecall are: - - All 5 hp model seriesnormal course of its business, the most prevalent of which relate to product liability (including asbestos-related liability) and patent and trademark matters.On June 3, 2004, eight individuals who claim to have purchased lawnmowers in Illinois and Minnesota filed a lawsuit(Ronnie Phillips et al. v. Sears Roebuck Corporation et al., No. 04-L-334 (20th Judicial Circuit, St. Clair County, IL)) against the Company and other defendants alleging that the horsepower labels on the products they purchased were inaccurate. The plaintiffs seek certification of a class of all persons in the United States who, beginning January 1, 1995 through the present, purchased a lawnmower containing a two stroke or four stroke gas combustible engine up to 20 horsepower that was manufactured by defendants.
The complaint seeks an injunction, compensatory and punitive damages, and attorneys’ fees. No orders have been entered in the case, and there has been no discovery. The Company intends to vigorously defend this case.
Although it is not possible to predict with
numbers 1352XX installed on Fun Karts. - - Only Fun Power model series beginning with numbers 1362XX made before June 22, 1995 and installed on Fun Karts.certainty the outcome of these unresolved legal actions or the range of possible loss, Briggs & Strattondiscontinued sale ofbelieves theseengines to OEM manufacturers in 1995. The entire estimated cost of the recall and a related civil penalty imposed by the Consumer Product Safety Commission is reflected in fiscal 2002 net income at $1.5 million or $.06 per diluted share. We dounresolved legal actions will notbelieve the recall willhave a material effect onBriggs & Stratton'sits financialconditionposition or results of operations.ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the three months ended June
30, 2002. 527, 2004. Executive Officers of the Registrant
EXECUTIVE OFFICERS OF THE REGISTRANT - ------------------------------------Name, Age, Position
Business Experience for Past Five Years
------------------- ---------------------------------------FREDERICK P. STRATTON, JR., 63 Mr. Stratton was elected to the position ofJOHN S. SHIELY, 52
Chairman,
Chairman of the Board (1)(2) in November 1986. Mr. Stratton also held the position ofPresident and Chief Executive Officerfrom May 1977 through June 2001. JOHN S. SHIELY, 50(1)(2)(3)Mr. Shiely was elected to his current position effective January 2003, after serving as President and Chief Executive Officer effectivesince July 2001after serving asand President and(1)(2)(3)Chief Operating Officer since August 1994.MICHAEL D. HAMILTON, 60 Mr. Hamilton was elected to his current position ExecutiveJAMES E. BRENN, 56
Senior Vice President and
effective July 2001, after serving as Executive President - Briggs & Stratton Asia Vice President - Sales and Service since June 1989. JAMES E. BRENN, 54Chief Financial OfficerMr. Brenn was elected to his current position in Senior Vice President andOctober 1998, after serving as Vice President andChief Financial OfficerController since November 1988. He also served as Treasurer from November 1999 until January 2000.DAVID G. DEBAETS, 41
Vice President and
General Manager – Large Engine Division
Mr. DeBaets was elected to his current position effective September 2003. He has served as Vice President and General Manager – Large Engine Division since April 2000. He also served as Vice President and General Manager – Die Cast Components from May 1996 to April 2000. RICKY T. DILLON, 33
Controller
Mr. Dillon was elected an executive officer effective September 1, 2004. He has served as Controller since March 2002. He previously served for 9 years with Arthur Andersen LLP. MARK R. HAZELTINE,
5961Vice President and
Sales Manager – Consumer Products
Mr. Hazeltine was elected to his current position in Vice President andMay 2002, after serving as Vice President and SalesSalesManager- Consumer Products Manager -– Consumer Lawn & Garden since July 1999. He also served as Sales Managersincefrom February1995.1995 to June 1999.ROBERT F. HEATH,
5456Secretary
Mr. Heath was elected to his current position in SecretaryJanuary 2002. He served as Assistant Secretarysincefrom January 2001 to December 2001. In addition, Mr. Heath is Vice President and General Counsel and has served in these positions since January 2001. He also served as General Counsel since December 1997.CURTIS E. LARSON, JR., 54 Mr. Larson was elected to his current position in Vice President - Distribution October 1995. Sales and Customer SupportPAUL M. NEYLON,
5557Senior Vice President – Engine Products Group
Mr. Neylon was elected to his current position in Senior Vice President - Engine ProductsOctober 2001, after serving as Senior Vice PresidentDivision -– Production from August 2000 to October 2001 and as Vice President-– Productionsincefrom May1999.1999 to July 2000. He previously served as Vice President-– Operations Support since January 1999 and prior to that held the position of Vice President and General Manager-– Spectrum Division.DORRANCE J. NOONAN, JR., 49WILLIAM H. REITMAN, 48
Vice President – Marketing
Mr. NoonanReitman was elected to his current positionSenior Vice President and effective upon completion of Briggs & Stratton's President - Briggs & Stratton acquisition of Generac Portable Products, Inc. in May Home Power Products 2001. Prior to the acquisition, he held the position of President, Chief Executive Officer and Director of Generac Portable Products, LLC and Director of Generac Portable Products, Inc. since July 1998. WILLIAM H. REITMAN, 46 Mr. Reitman was elected an executive officer Vice President - Marketingeffective April 1998. He has served as Vice President-– Marketing since November 1995.6
STEPHEN H. RUGG,
5557Senior Vice President – Sales and Service
Mr. Rugg was elected to his current position in May Senior Vice President - Sales and Service1999, after serving as Vice President-– Sales since November 1995.THOMAS R. SAVAGE,
5456Senior Vice President – Administration
Mr. Savage was elected to his current position Senior Vice President - Administrationeffective July 1997, after serving as Vice President-– Administration and General Counsel since November 1994. He also served as Secretary from November 1999 to June 2000.
MICHAEL D. SCHOEN,
4244Vice President – International Group
Mr. Schoen was elected to his current position Vice President - Internationaleffective July 2001. He was elected an executive officer in August 2000, after serving as Vice President-– Operations Support since July 1999. He previously held the position of Vice President-– International Operations since July 1996.VINCENT R. SHIELY,
4244Vice President and
General Manager – Engine Products Group (3)
Mr. Shiely was elected to thehis current positionof Vice Vice President and General President and General Manager - Engine Products Manager - Engine ProductseffectiveinSeptember 2002 after serving as Vice(3)President and General Manager-– Business Units since December 2001. He also served as Vice President and General Manager-– Electrical Products Division since October 1998.TODD J. TESKE,
3739Senior Vice President and
President – Briggs & Stratton
Power Products Group, LLC
Mr. Teske was elected to his current position effective September 2003 after serving as Vice President -and President – Briggs & Stratton Power Products Group, LLC since February 2003. He also served as Vice President – Corporate Developmenteffectivefrom March 2001 after serving as Controller since October 1998.He previously served as Assistant Controller.CARITA R. TWINEM,
4749Treasurer
Ms. Twinem was elected to her current position in TreasurerFebruary 2000, after serving as Tax Director since July 1994.JOSEPH C. WRIGHT,
4345Vice President and
General Manager – Lawn and Garden Division
Mr. Wright was elected to his current position in September 2004. He was elected an executive officer effective September 2002. He previously served as Vice President and General September 2002. He has served as Vice PresidentManager- Small Engine Division and General Manager -– Small Engine Division since July 1997.He previously served at Plant Manager.(1) Officer is also a Director of Briggs & Stratton. (2) Member of Executive Committee. (3) John S. Shiely and Vincent R. Shiely are brothers.
(1) Officer is also a Director of Briggs & Stratton.
(2) Member of Executive Committee.
(3) John S. Shiely and Vincent R. Shiely are brothers. Officers are elected annually and serve until they resign, die, are removed, or a different person is appointed to the office.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, ANDRELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIESBriggs & Stratton common stock and its common share purchase rights are traded on the NYSE under the symbol
"BGG"“BGG”. Information required by this Item is incorporated by reference from the"Quarterly“Quarterly Financial Data, Dividend and MarketInformation"Information” (unaudited) on page36. 7ITEM 6. SELECTED FINANCIAL DATA
Fiscal Year 2002 2001 2000 1999 1998 - ----------- ---- ---- ---- ---- ---- (dollars in thousands, except per share data)SUMMARY OF OPERATIONS(1) NET SALES(2) ............................ $1,529,372 $1,310,173 $1,591,236 $1,502,522 $1,329,141 GROSS PROFIT ON SALES(2) ................ 272,033 236,790 338,126 303,913 254,356 PROVISION FOR INCOME TAXES .............. 27,390 23,860 80,150 63,670 42,500 NET INCOME(3) ........................... 53,120 48,013 136,473 106,101 70,645 PER SHARE OF COMMON STOCK: Basic Earnings ........................ 2.46 2.22 5.99 4.55 2.86 Diluted Earnings ...................... 2.36 2.21 5.97 4.52 2.85 Cash Dividends ........................ 1.26 1.24 1.20 1.16 1.12 Shareholders' Investment .............. $ 20.78 $ 19.57 $ 18.83 $ 15.77 $ 13.28 WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING (in 000's) .... 21,615 21,598 22,788 23,344 24,666 DILUTED NUMBER OF SHARES OF COMMON STOCK OUTSTANDING (in 000's) .... 24,452 21,966 22,842 23,459 24,775 OTHER DATA(1) SHAREHOLDERS' INVESTMENT ................ $ 449,646 $ 422,752 $ 409,465 $ 365,910 $ 316,488 LONG-TERM DEBT .......................... 499,022 508,134 98,512 113,307 128,102 TOTAL ASSETS ............................ 1,349,033 1,296,195 930,245 875,885 793,409 PLANT AND EQUIPMENT ..................... 879,635 890,191 838,655 859,848 812,428 PLANT AND EQUIPMENT, NET OF RESERVES..... 395,215 416,361 395,580 404,454 391,927 PROVISION FOR DEPRECIATION .............. 61,091 56,117 51,097 49,346 47,511 EXPENDITURES FOR PLANT AND EQUIPMENT..... 43,928 61,322 71,441 65,998 45,893 WORKING CAPITAL ......................... $ 403,921 $ 371,248 $ 158,516 $ 160,350 $ 149,846 Current Ratio ......................... 2.5 to 1 2.5 to 1 1.5 to 1 1.6 to 1 1.7 to 1 NUMBER OF EMPLOYEES AT YEAR END ......... 6,971 6,974 7,233 7,994 7,265 NUMBER OF SHAREHOLDERS AT YEAR END ...... 4,686 4,129 4,385 4,628 4,911 QUOTED MARKET PRICE: High .................................. $ 48.39 $ 48.38 $ 63.63 $ 70.94 $ 53.38 Low ................................... $ 29.65 $ 30.38 $ 31.00 $ 33.69 36.88(1) The amounts include45.Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
Briggs & Stratton did not make any purchases of equity securities registered by the
acquisitionCompany pursuant to Section 12 ofGPPthe Exchange Act.
ITEM 6. SELECTED FINANCIAL DATA
Fiscal Year
2004 2003 2002 2001 2000 (dollars in thousands, except per share data) SUMMARY OF OPERATIONS(1)
NET SALES
$ 1,947,364 $ 1,657,633 $ 1,529,300 $ 1,306,638 $ 1,591,442 GROSS PROFIT ON SALES
439,872 328,079 269,964 233,255 338,332 PROVISION FOR INCOME TAXES
68,890 37,940 27,390 23,860 80,150 NET INCOME(2)
136,114 80,638 53,120 48,013 136,473 PER SHARE OF COMMON STOCK:
Basic Earnings
6.01 3.73 2.46 2.22 5.99 Diluted Earnings
5.53 3.49 2.36 2.21 5.97 Cash Dividends
1.32 1.28 1.26 1.24 1.20 Shareholders’ Investment
$ 32.05 $ 23.66 $ 20.78 $ 19.57 $ 18.83 WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING (in 000’s)
22,643 21,639 21,615 21,598 22,788 DILUTED NUMBER OF SHARES OF COMMON STOCK OUTSTANDING (in 000’s)
25,340 24,480 24,452 21,966 22,842 OTHER DATA(1)
SHAREHOLDERS’ INVESTMENT
$ 817,595 $ 514,987 $ 449,646 $ 422,752 $ 409,465 LONG-TERM DEBT
360,562 503,397 499,022 508,134 98,512 TOTAL ASSETS
1,637,153 1,475,193 1,356,601 1,306,243 940,950 PLANT AND EQUIPMENT
867,987 876,664 879,635 890,191 838,655 PLANT AND EQUIPMENT, NET OF RESERVES
356,542 370,784 395,215 416,361 395,580 PROVISION FOR DEPRECIATION
59,816 58,325 61,091 56,117 51,097 EXPENDITURES FOR PLANT AND EQUIPMENT
52,962 40,154 43,928 61,322 71,441 WORKING CAPITAL
$ 681,432 $ 505,752 $ 411,241 $ 381,443 $ 170,326 Current Ratio
3.3 to 1 2.7 to 1 2.6 to 1 2.6 to 1 1.5 to 1 NUMBER OF EMPLOYEES AT YEAR-END
7,732 7,249 6,971 6,974 7,233 NUMBER OF SHAREHOLDERS AT YEAR-END
4,230 4,503 4,686 4,129 4,385 QUOTED MARKET PRICE:
High
$ 88.44 $ 51.50 $ 48.39 $ 48.38 $ 63.63 Low
$ 49.35 $ 30.75 $ 29.65 $ 30.38 $ 31.00
(1) The amounts include the acquisition of BSPPG since May 15, 2001. Refer to the Notes to Consolidated Financial Statements.
(2) Fiscal year 2000 includes a $10.4 million gain on the disposition of foundry assets.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Acquisition
On July 7, 2004 Briggs & Stratton Corporation and its subsidiary, Briggs & Stratton Power Products Group, LLC, acquired Simplicity Manufacturing, Inc. (“Simplicity”) for $227 million plus certain transaction related expenses. Simplicity designs, manufactures and markets a wide variety of premium yard and garden tractors, lawn tractors, riding mowers, snow throwers, attachments, and other lawn and garden products like rototillers and chipper shredders. See Note 15 of the Notes to Consolidated Financial
Statements. (2) Reflects the adoptionStatements for additional information on this acquisition. The following Management Discussion and Analysis does not include a discussion ofEITF No. 01-09 for allSimplicity’s operating results because this transaction occurred subsequent to our fiscalyears presented. Refer to the Notes to Consolidated Financial Statements. (3) Fiscal year 2000 includes a $10.4 million gain on the dispositionyear-end.Results of
foundry assets. Refer to the Notes to Consolidated Financial Statements. 8ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONSOperationsFISCAL
20022004 COMPARED TO FISCAL20012003Net Sales
Fiscal
20022004 consolidated net sales were approximately$1.5$1.9 billion, an increase of$219$290 million, or 17% compared to the previous year.Generac Portable Products (GPP), included for a fullThe improvement was driven primarily by increased sales volume in both Segments. Engine Segment net sales were $1.6 billion in fiscalyear first time, added $1862004, an increase of $189 million or 13% compared to the prior year. Engine Segment increases were driven by an 11% increase in unit volume resulting in $163 million insalesnet sales. $59 million or 4% of thefiscal year. Ourincrease in engine unit volume is attributable to sales to our Power Products Segment. Lawn and garden sales volume gains were driven by a strong selling season at retail. Inventory levels were low at the major original equipment manufacturers going into this fiscal year. As a result, the demand for engines was high all year long in anticipation of a strong season, which materialized. We believe the volume increase is reflective of market growth and market penetration in the U.S. While our European sales unit volume was down due to the drought conditions in Europe during much of fiscal 2004, the Euro exchange rate drove a $26 million increase in net sales. Power Products net sales were $489 million in fiscal 2004, an increase of8%$160 million, or 48%, over fiscal 2003. Generator volume benefited significantly by the wide spread power outages that occurred in the first quarter of fiscal 2004, as a result of the eastern electrical grid failure and the landfall of a major hurricane. There were no major power outages in fiscal 2003. These events, along with increased marketing efforts, increased consumer awareness which continued to drive the demand for generators higher in fiscal 2004. Pressure washer net sales gains were driven by continued advertising and promotions at major retailers, consistent with programs launched in the prior year and increased placement at a major retailer.Gross Profit
Consolidated gross profit increased $112 million between years. Volume increases generated $76 million of the improvement; with approximately $60 million from increases in the Engine Segment and the remainder from the Power Products Segment. The remaining $36 million of gross margin increases came from gross margin percentage improvements in the Engine Segment. Engine Segment margins improved from 20% to 24%. Pricing improvement due to the impact of a stronger Euro on European sales contributed $26 million to the improvement. A 14% increase in production volume contributed $18 million in absorption benefits and our manufacturing cost reduction programs contributed an additional $14 million to the improvement. These positive margin enhancers were partially offset by
an unfavorable sales mix weighted towards lower priced engines accounts for the majority of the remaining increase. Gross Profit The total Company gross profit rate of approximately 18% was comparable with fiscal 2001. The Engine segment gross profit rate remained approximately 18% in fiscal 2002. Reductionsa $22 million net increase in manufacturing costs,of $25 million (primarily, repairsprimarily overhead, raw materials andmaintenance, processing supplies, utilitiescomponent costs. These cost increases reflect initiatives by many vendors to pass along higher costs due to price pressures on scrap aluminum andwarranty)steel. We expect these cost increases to continue in fiscal 2005. We currently anticipate that our cost reduction programs and sales pricing initiatives should offset these higher costs. The Power Products Segment margin was at 12% in both fiscal 2004 and fiscal 2003. A 55% production volume improvement and manufacturing cost reduction efforts were offset by$17 millionincreased purchased component costs. The Power Products Segment purchases a major pressure washer component from a European supplier in Euros. In fiscal 2004 the Euro purchases reduced gross margins ofincreased costs (primarily, fringe benefits which included rising healthcare costs). GPPthe Power Products Segment by approximately $12 million. Under the Company’s foreign currency management program, this negative impact on marginswere approximately 9% for fiscal 2002, similar to their resultswas offset by the positive impact of the Euro discussed for the12 months ended June, 2001.Engine Segment.Engineering, Selling, General and Administrative Costs
Engineering, selling, general and administrative costs increased
$16$28 million or12%15% compared to fiscal2001.2003. Increases in this category include salaries and fringe benefit cost increases of approximately $6 million, professional services of $6 million, marketing cost increases of $5 million and international variable selling cost increases of $6 million. In addition, $2 million of the increase is attributable to bad debt expense associated with a prior fiscal year customer bankruptcy. The increases in salaries and fringe benefits reflect increased incentive compensation awards in the current year, as well as increased employee benefit costs, essentially pension and health care. The increase in professional services isentirelyattributable to several consulting projects related to our distributor channels, emissions regulations and Sarbanes-Oxley compliance efforts. Increased marketing costs were driven by increased spending on Power Products’ market expansion and international marketing efforts. Increases in international variable selling costs include $2 million attributable to translating Euro denominated expenditures by a stronger Euro.Interest Expense
Interest expense decreased $3 million in fiscal 2004 compared to fiscal 2003. The decrease is essentially the result of reduced working capital borrowings in the current year and the impact of a fixed to variable interest rate swap. On March 16, 2004, the Company called for the redemption of its $140 million 5% convertible senior notes due in 2006. Substantially all of the holders of the notes exercised their conversion rights prior to the redemption date of May 15, 2004. This resulted in the issuance of approximately three million treasury shares in May 2004 and the write-off of approximately $2 million in deferred financing costs. The redemption of these bonds eliminated all convertible debt and reduced our long-term debt to approximately $361 million. The redemption will also eliminate approximately $7 million in interest expense in fiscal 2005. In April 2004, all interest rate swaps were terminated resulting in a net gain of approximately $500 thousand.
Other Income
Other income remained at approximately $9 million in fiscal 2004, consistent with prior years. Refer to Note 8 of the Notes to Consolidated Financial Statements for detail of the components of other income.
Provision for Income Taxes
The effective tax rate increased from 32% in fiscal 2003 to 34% in fiscal 2004. The rate reflects less of a benefit from foreign and state tax credits. Earnings from some of our foreign subsidiaries was down due to market conditions, while the domestic income contribution increased. The impact of lower tax credits was offset by a reduction in the tax provision due to the closing of a tax audit year and recording additional tax benefits related to the filing of our fiscal 2003 income tax return.
FISCAL 2003 COMPARED TO FISCAL 2002
Net Sales
Fiscal 2003 consolidated net sales were approximately $1.7 billion, an increase of $128 million, or 8% compared to the previous year. Power Products sales increased $105 million, accounting for the majority of the increase. Generator sales increased $54 million to $152 million, up from $98 million in 2002. Fiscal 2003 marked the return of significant demand-creating events such as hurricanes and ice storms after a two-year absence of significant activity. The generator market decreased significantly after the record demand created by the concern over year 2000 issues. We do not believe this market to be mature and have developed marketing campaigns to increase brand awareness and drive purchase decisions. We believe our efforts have generated demand resulting in increased household penetration. Our marketing efforts in fiscal 2003 included retailer specific flyers and promotions, national and regional advertising, and television and radio ads. We believe the return of weather events and our cooperative promotional activities together resulted in the sales increase in fiscal 2003. Pressure washer sales increased $49 million to $164 million, up from $115 million in fiscal 2002. Pressure washer sales also benefited from similar promotional campaigns, as described above. The remainder of the consolidated sales increase was attributable to the
inclusionEngine Segment. Improved engine unit volume resulted in a $28 million sales increase and greater volume in component parts and international service sales provided another $22 million sales increase. The remainder of$18the increase was primarily price improvement on international sales, as a result of a stronger Euro. Offsetting the Engine Segment improvements were $46 million ofGPPincreased sales to the Power Products Segment that were eliminated in consolidation. Engine Segment volume improvements were driven by market growth.Gross Profit
Consolidated gross profit increased $58 million over the previous year. Volume increases generated $23 million of the improvement, with approximately $13 million from volume increases in the Engine Segment and the remainder from the Power Products Segment volume. The remaining $35 million of gross margin increases came from improvements in gross margin percentages in both business Segments. Engines improved from 18% to 20% and Power Products improved from 10% to 12%. The gross margin percentage change in Engines resulted in approximately $28 million of improvement to gross margins between years. Pricing improvement, primarily due to the impact on European sales of a stronger Euro, contributed $12 million to the improvement and net reductions in manufacturing costs and an 11% increase in production volume each provided another $8 million of gross margin improvement.
On an ongoing basis we challenge our operations group to lower our manufacturing costs in order to remain competitive in the marketplace. Historical areas of focus have been product engineering, labor productivity, controllable overhead spending, warranty and quality costs, as well as purchased component pricing. While none of these items account for an individually significant portion of our savings, the net impact across our six production facilities was a reduction in cost of $8 million.
The Power Products gross margin percentage increase of 2% resulted in approximately $7 million of improved gross margin. A 59% production volume increase was the primary driver of the improvement. As previously discussed, an increase in weather related events and promotional activities increased demand for generators and pressure washers in fiscal 2003. The increased demand allowed us to increase production volume between years.
Engineering, Selling, General and Administrative Costs
Engineering, selling, general and administrative costs
for a full year. The Engine segment Engineering, Selling and Administrative costincreased $24 million or 16% compared to fiscal 2002. Increases in this categoryexperienced increasedinclude salaries and fringe benefitexpensescost increases of approximately$8$13 million,but thesemarketing cost increaseswere offset by aof $6 millionimpactand international variable selling cost increases oflower bad debt write-off experience$4 million. The increases in salaries anda bad debt recovery,fringe benefits reflect increased incentive compensation awards in fiscal 2003, as well as increased employee benefit costs, essentially pension and$3 million of lowerhealth care. Increased marketingexpenses.costs were driven by increased spending on Power Products market expansion and international marketing efforts.Interest Expense
Interest expense
increased $14decreased $4 million in fiscal20022003 compared to fiscal2001,2002. The decrease is essentially the result of reduced working capital borrowings in the current year and the impact ofincreased borrowings associated with the GPP acquisition.a fixed to variable interest rate swap.Other Income
Other income
increased $3remained at $9 million in fiscal 2003, consistent with prior years. Refer to Note 8 of the Notes to Consolidated Financial Statements for detail as to the components of other income.Provision for Income Taxes
The effective tax rate decreased from 34% in fiscal 2002
comparedto 32% in fiscal2001.2003. This decrease is attributable to tax credits related to increased foreign sourced income.Liquidity and Capital Resources
FISCAL YEARS 2004, 2003 AND 2002
Cash flows from operating activities were $46 million, $167 million and $200 million, in fiscal 2004, 2003 and 2002, respectively.
The fiscal 2004 cash flow from operating activities were $122 million lower than the prior year. Fiscal 2004 experienced a significant increase in inventory levels, which reduced cash flows from operating activities by $129 million in fiscal 2004 and $117 million between years. Engine inventories increased $76 million between years. This increase is attributable to
a $9 million increase in foreign currency transaction gains offset by $5 million in derivative losses and $1 million in amortizationstrong production levels through the end ofdeferred financing costs from the GPP acquisition. Provision for Income Taxes The effective tax rate increased to 34.0% in fiscal 2002 from 33.2%. The effective rates both reflect a refund on Foreign Sales Corporation tax benefits, however, the fiscal 2001 refund was larger. FISCAL 2001 COMPARED TO FISCAL 2000 Acquisition On May 15, 2001, Briggs & Stratton acquired GPP for net cash of $267 million. Refer to Note 3 to the Consolidated Financial Statements for additional information on the acquisition. Sales Net sales for fiscal 2001 totaled approximately $1.3 billion, a decrease of $281 million or 18% compared to the preceding year. The primary factors were a 10% decline in engine unit volume, 15% lower sales of service components due to Briggs & Stratton's distributors having an adequate stock of parts, and an unfavorable sales mix as the entire 10% engine unit decline was made up of larger horsepower engines. Inventories of riding equipment at the OEMs and retailers were more than adequate to address soft demand for riding lawn and garden equipment. The other major factor adversely affectingthe fiscal yearwasdriven by a strong selling season at retail. In addition we believe that theweak Euro which lowered revenues by $24 million. Additionally, these revenues decreased because Briggs & Stratton's pricing reflectedincreased inventory is needed to meet our forecast for fiscal 2005. Our Power Products Segment also experienced an increase in inventory levels of $53 million between years. This increase in inventory reflects strong production levels throughout theneedyear in order toremain competitivereplenish depleted inventories after the demand creating events for generators in theEuropean market.current year. Theacquisitioncurrentinventory levels reflect our judgment of
GPP added $30 millionlevels needed to maintain our position as the market leader insales. Gross Profit The gross profit rate decreasedresponsiveness to18% from 21% in fiscal 2000. The major reasonscustomer demand. Pressure washer inventory levels reflect increasing demand for thedecreaseproduct due to significant market growth in the category. Inventory on hand will always reflect demand and our ability to respond to market changes at our production facilities in a timely manner.Also contributing to the lower cash flows from operating activities were increased receivables growth between years of $23 million, which reflects our sales growth at both Segments and timing of payments, lower
plant utilization having a $32payable increases between years of $40 millionimpactandthe weak Eurolower deferred tax provisions between years of$24$11 million. Offsetting thesefactors was the favorablereductions in cash flows were increased earnings of $55 million, a reduction in prepaid expenses between years of $7 million and lower pension incomeimpactof$12$7 million.Pension income included in gross profit totaled $24 million inThe fiscal
2001. Engineering, Selling, General and Administrative Expenses Engineering, selling, general and administrative expenses increased $5 million or 4% compared to fiscal 2000. Expenses in this category increased almost $20 million. The majority of the increase was due to the following factors: a $16 million planned expansion of staff and expenditures for business development and introduction of new product, a 9$3 million bad debt write-off, and $3 million of GPP's operating costs incurred since the acquisition. The increased costs were offset by $14 million of lower employee benefit costs for profit sharing and increased pension income. Pension income in this category was $4 million in fiscal 2001. Interest Expense Interest expense increased $9 million or 44% in fiscal 2001 compared to fiscal 2000 because the level of borrowings was greater in fiscal 2001. The increased level of borrowings resulted from increased seasonal working capital needs and the funding of the GPP acquisition. Other Income Other income decreased $13 million in fiscal 2001 compared to fiscal 2000. This decrease is attributed primarily to an $8 million reduction in equity income from joint ventures and investments and $5 million in foreign currency transaction losses. Provision for Income Taxes The effective tax rate decreased to 33.2% in fiscal 2001 from 37.0% in the previous year. The majority of the decrease was the result of the finalization and approval by the Congressional Joint Committee on Taxation of a refund on our Federal taxes related to Foreign Sales Corporation tax benefits. LIQUIDITY AND CAPITAL RESOURCES FISCAL YEARS 2002, 2001 AND 2000 Cash2003 cash flow from operating activities was$200$32 million$68 million and $77 million,lower than the prior year. Fiscal 2003 did not experience the significant reduction in inventory investment experienced in fiscal 2002, which caused cash flows to be $134 million less between years. Inventory levels are a function of planned production levels based on anticipated demand, contrasted with actual sell through of product at retail. In fiscal 2001 the market was soft resulting in lower than anticipated sales for the year and2000, respectively. The fiscal 2002 cash flow from operating activitiesincreased$132 million, which was driven primarily by a reduction in inventory and an increase in accounts payable and accrued liabilities. The decrease ininventory levelswas achieved through increased sales volume, while holding production levels consistent between years. The fiscal 2001 cash flow from operating activities decreased $10 million, which reflects lower gains onthroughout thedisposition of plant and equipment of $16 million. The lower gains from disposition of plant and equipment were because fiscal 2000 contained the dispositionchannel. As a result of thefoundry assets. The increase in inventories was $114 million less in fiscal 2001 compared to the fiscal 2000 increase. This decrease was the result of plannedunusually high inventoryincreases in fiscal 2000 to replenish abnormally low inventories to more normal levels. The change in accounts payable and accrued liabilities was $48 million less in fiscal 2001 due to timing of payments and lack of accruals for profit sharing due to lower performance. The $18 million increase in pension income is attributable to Briggs & Stratton's over funded pension plan. The fiscal 2000 cash flow from operating activities decreased $38 million. This reflects increased net income of $30 million offset by the gain on disposition of foundry assets of $17 million and an increased requirement for operating capital of $41 million caused by increases in inventorieslevels at the end of fiscal2000 offset by2001, we lowered our planned production in 2002. The 2002 lawn and garden selling season was strong, and we were successful in getting our inventory levels back to a level we considered normal. The fiscal 2003 selling season was also strong resulting in no significant change in our inventory levels.Offsetting this reduction in cash flow were improved cash flows related to increased earnings of $28 million, a lower accounts
receivable. Net cashreceivable increase between years of $51 million and higher current liabilities of $19 million. Accounts receivable levels increased in fiscal 2002 because of strong fourth quarter sales versus the prior year. Sales strength in the fourth quarter was similar between fiscal 2003 and 2002 resulting in an accounts receivable balance that did not change significantly. Current liabilities, primarily accruals for profit sharing were greater between years because better performance in fiscal 2003 resulted in larger bonus awards than the prior year.Cash used in investing activities
amounted to $38was $42 million,$318$27 million and$43$38 million in fiscal 2004, 2003 and 2002,2001 and 2000,respectively.These cashCash flows include capital expenditures of$44$53 million,$61$40 million and$71$44 million in fiscal2002, 20012004, 2003 and2000,2002, respectively. These capital expenditures relate primarily to reinvestment in equipment, capacity additions and new products.TheIn fiscal
2001 cash used in investing activities includes $2672004, Briggs & Stratton received $6 million as a refund of a portion of the cash paid for theGPPBSPPG acquisitionnetin fiscal 2001. The amount was to adjust the original purchase price for the actual value received in acquired receivables and inventory.In fiscal 2003, Briggs & Stratton increased its investment in its China joint venture from 52% to 90%. This increase in ownership interest gave Briggs & Stratton control over the joint venture. Accordingly, its operating results are now reflected in Briggs & Stratton’s consolidated financial statements. The actual cash outlay in fiscal 2003 for the restructuring was $343 thousand; however, the consolidation resulted in an increase in cash of approximately $4 million.
Briggs & Stratton provided cash
acquired. Thefrom financing activities totaling $13 million in fiscal2000 cash used in investing activities is net of $24 million of proceeds received on disposition of plant and equipment.2004. Briggs & Stratton used cash in financing activitiestotalling $38totaling $37 million and$77$38 million in fiscal 2003 and 2002, respectively. During fiscal 2004 the company received $45 million from the exercise of stock options as opposed to $5 million and2000,$1 million in fiscal 2003 and 2002, respectively. The stock option activity is a direct reflection of option strike prices, which encouraged the exercise of the options. During fiscal 2003 the Company paid down $15 million of its short-term loans and notes payable. These loans were primarily used to fund the short-term working capital needs of Briggs & Stratton’s foreign operations. Given the level of cash flows the last two fiscal years and the available cash on hand, Briggs & Strattonprovided cash through financing activities totalling $324made the decision to pay off these borrowings and fund these operations with available cash. Briggs & Stratton did not use its revolver to finance working capital needs during fiscal 2004. In fiscal 2004 Briggs & Stratton also incurred $2 millionin fiscal 2001.to negotiate a new revolving credit agreement. During fiscal 2002 Briggs & Stratton repaid $10 million of its 7.25% Senior Notes due2007. Financing activitiesin 2007.Future Liquidity and Capital Resources
As previously noted, Briggs & Stratton acquired Simplicity Manufacturing, Inc. in July of fiscal
2001 included $399 million of proceeds received from issuing the 5.00% Convertible Senior Notes due 2006 and the 8.875% Senior Notes due 2011, in order to fund2005, using its available cash. We don’t believe the acquisition ofGPPSimplicity will significantly alter our future liquidity andpayment of short term borrowings. During fiscal 2000,capital needs given its profitability and existing receivable financing arrangements.Briggs & Stratton
repaidhas negotiated a new five-year $275 million revolving credit facility that expires in May 2009. This credit facility will be used to fund seasonal working capital requirements and other financing needs. This facility and Briggs & Stratton’s other indebtedness contain certain restrictive covenants described in Note 7 of theremaining $30 million onNotes to Consolidated Financial Statements. Because of our financial strength we were able to negotiate less restrictive covenants under the9.21% Senior Notes due 2001.new revolving credit facility, specifically the covenants do not include the springing lien provisions of our previous credit facility.Briggs & Stratton
repurchased $6expects capital expenditures to be $87 millionand $69 million of common sharesin fiscal20012005. These anticipated expenditures reflect our plans to continue to reinvest in equipment, new products, and2000, respectively. There were no common shares repurchased in fiscal 2002.capacity enhancements.Management believes that available cash, the credit facility, cash generated from future operations, existing lines of credit and access to debt markets will be adequate to fund Briggs &
Stratton'sStratton’s capital requirements for the foreseeable future.Financial Strategy
Management believes that the value of Briggs & Stratton is enhanced if the capital invested in operations yields a cash return that is greater than the cost of capital. Consequently, management’s first priority is to reinvest capital into physical assets and products that maintain or grow the global cost leadership and market positions that Briggs & Stratton has achieved, and drive the economic value of the Company. Management’s next financial objective is to identify strategic acquisitions or alliances that enhance revenues and provide a superior economic return. Several successful joint ventures and the acquisition of BSPPG are examples of our successful execution of this strategy. Finally, management believes that when capital cannot be invested for returns greater than the cost of capital, we should return capital to the capital providers. This approach is apparent in the programs we executed to repurchase common stock from fiscal 1997 through 2001.
Off-Balance Sheet Arrangements
Briggs & Stratton has no off-balance sheet arrangements or significant guarantees to third parties not fully recorded in our Balance Sheets or fully disclosed in our Notes to Consolidated Financial Statements. Briggs & Stratton’s significant contractual obligations
areinclude our debt agreements and certain employee benefit plans.Briggs & Stratton is subject to financial and operating restrictions in addition to certain financial covenants under its domestic debt agreements. As is fully disclosed in Note 7 of the Notes to Consolidated Financial Statements, these restrictions could limit our ability to: pay dividends; incur further indebtedness; create liens; enter into sale and/or leaseback transactions; consolidate, sell or lease all or substantially all of our assets; and dispose of assets or the proceeds of our assets. We believe we will remain in compliance with these covenants in fiscal 2005. Briggs & Stratton has obligations concerning certain employee benefits including its pension plans, post retirement benefit obligations and deferred compensation arrangements. All of these obligations are recorded on our Balance Sheets and disclosed more fully in the Notes to
theConsolidated Financial Statements.In addition, Briggs & StrattonContractual Obligations
A summary of the Company’s expected payments for significant contractual obligations as of June 27, 2004 is
subjectas follows (in thousands):
2005 2006-2007 2008-2009 Thereafter Total Long-Term Debt
$ — $ 89,403 $ — $ 271,159 $ 360,562 Interest on Long-Term Debt
30,931 57,512 48,812 42,710 179,965 Operating Leases
7,552 6,845 2,794 1,265 18,456 $ 38,483 $ 153,760 $ 51,606 $ 315,134 $ 558,983 As of June 27, 2004, the Company had no material purchase obligations other than those created in the ordinary course of business related to
certain financialinventory andoperating restrictions underproperty, plant and equipment which generally have terms of less than 90 days. The Company also has long-term obligations related to itsdomestic debt agreements. As is fully disclosedpension and postretirement plans which are discussed in detail in Note613 to the financial statements. As ofthe notes to consolidated financial statements, these restrictions limit our ability to: pay dividends; incur further indebtedness; create liens; enter into sale and/or leaseback transactions; consolidate, sell or 10lease all or substantially all of our assets; and dispose of assets or the proceeds of our assets, in addition to certain financial covenants. We believe we will remain in compliance with these covenantsits most recent actuarial measurement date, no pension plan contributions are required in fiscal2003. Future Liquidity2005, andCapital Resources Briggs & Stratton has a three-year $300 million revolving credit facility. This credit facility is used to fund seasonal working capital requirements and other financing needs. This facility and Briggs & Stratton's other indebtedness contain certain restrictive covenants. Refer to Note 6 to the Consolidated Financial Statements. Briggs & Stratton expects capital expenditures to be $60 million for fiscal 2003. These anticipated expenditurespostretirement medical claims arefor continued investments in equipment and new products. Management believes that available cash, the credit facility, cash generated from operations, existing lines of credit and access to debt markets will be adequate to fund Briggs & Stratton's capital requirements for the foreseeable future. FINANCIAL STRATEGY Management believes that the value of Briggs & Stratton is enhanced if the capital invested in operations yields a cash return that is greater than the cost of capital. In addition, Management believes that when capital cannot be invested for returns greater than the cost of capital,paid as theyshould return the capital to the capital providers. Briggs & Stratton also believes that the substitution of lower (after-tax) cost debt for equity in its permanent capital structure will reduce its overall cost of capital. Examples of the above beliefsarethe repurchase of common stock from fiscal 1997 to 2001 when capital was not required for operational expansion and the fiscal 2001 increase of capital through debt for an acquisition. Briggs & Stratton believes its profitability and strong cash flows will accommodate the increased use of debt without impairing its ability to finance growth or increase cash dividends per share on its common stock. Briggs & Stratton has remaining authorization to buy up to 1.8 million shares of its stock in open market or private transactions under the June 2000 Board of Directors' authorization to repurchase up to 2.0 million shares. Briggs & Stratton did not repurchase shares in fiscal 2002 and does not anticipate any repurchases in fiscal 2003. Also as a part of its financial strategy, subject to the discretion of its Board of Directors and the requirements of applicable law and debt covenants, Briggs & Stratton currently intends to increase future cash dividends per share at a rate approximating the inflation rate. OTHER MATTERSsubmitted.Other Matters
Early Retirement Incentive Program
In the second quarter of fiscal 2002, Briggs & Stratton offered and finalized an early retirement incentive program. The net reduction in the global salaried workforce was approximately 7%.
The impact for fiscal year 2002 was a reduction in net income on an after-tax basis of $2.5 million, after consideration of approximately $3 million in savings for lower salary related expenditures. The majority of the impact on net income was the result of recognizing the cost of the special termination benefits, which reduced net periodic pension income.
The anticipated net income impact of salary related savings for fiscal 2003 is projected to be approximately $6 million on an after-tax basis. General In July 2001,Labor Agreement
Briggs & Stratton
extended itshas collective bargainingagreementagreements withone ofits unions.This agreement expiresThese agreements expire in 2006 for the Engines Segment andcontains provisionsin 2007 forfuture wage increases, medical cost sharing and increased pension benefits. Emissions Briggs & Stratton implemented a supplemental compliance plan for model years 2000 and 2001 withtheCalifornia Air Resources Board (CARB), as required of companies that sold more than a threshold number of Class I engines into California. The objective of the plan was to achieve additional reductions in extreme non-attainment areas. While CARB's aggressive program resulted in a reduced product offering by Briggs & Stratton in California, the California program did not have a material effect on Briggs & Stratton's financial condition or results of operations.Power Products Segment.Emissions
The U.S. Environmental Protection Agency (EPA) has developed national emission standards under a two phase process for small air cooled engines. Briggs & Stratton currently has a complete product offering which complies with the
EPA'sEPA’s Phase I engine emission standards. The Phase II program imposes more stringent standards over the useful life of the engine and is being phased infrom 2001 tothrough 2005 for Class II (225 or greater cubiccentimeter displacement)centimeter) displacement engines andfrom 2003 tothrough 2008 for Class I (under 225 cubiccentimeter displacement)centimeter) displacement engines. The majority of Briggs & Stratton’s engines are certified to be compliant with the EPA’s Phase II standards. Accordingly, Briggs & Stratton does not believe compliance with the new standards will have a material adverse effect on its financial position or results of operations.11EPA is also evaluating the development of Phase III standards to further reduce engine exhaust emissions and to control evaporative emissions from small off-road engines and equipment they are used in. A draft regulation is scheduled for publication by the end of calendar year 2004. We cannot predict the scope of any proposal or of the final regulations that EPA may ultimately adopt, and accordingly cannot estimate what, if any, impact such regulations could have on future financial performance.
The California Air Resources Board (CARB) staff issued a revised proposed Tier 3 regulation requiring additional reductions to engine exhaust emissions and also requiring new controls on evaporative emissions from small engines. The CARB staff proposal is phased in between 2006 and 2008 depending upon the size of the engine and type of control. While Briggs & Stratton believes the cost of the proposed regulation on a per engine basis may be significant, Briggs & Stratton does not believe the CARB staff proposal will have a material effect on its financial condition or results of operations. This assessment is based on a number of factors, including the “Bond Amendment” which precludes other states from opting into the California standard, revisions CARB made to its proposal from that published in September 2003 in response to recommendations from Briggs & Stratton and others in the regulated category, the fact that California represents a relatively small percentage of Briggs & Stratton’s engine sales and our ability and intention to pass increased costs associated with the CARB regulation on to California consumers.
The European Commission adopted an engine emission Directive regulating exhaust emissions from engines manufactured by Briggs & Stratton. The European Directive parallels the regulation previously promulgated by the U.S. EPA; therefore, Briggs & Stratton anticipates having a full product line offering which complies with Stage I and II of the Directive. Briggs & Stratton does not believe compliance with the new Directive will have a material adverse effect on its financial position or results of operations.
Critical Accounting Policies
Briggs &
Stratton'sStratton’s critical accounting policies are more fully described in Note12 and Note 9 of the Notes totheConsolidated Financial Statements. As discussed in Note1,2, the preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates, and suchdifferencedifferences may be material to the financial statements.The most significant accounting estimates inherent in the preparation of our financial statements include estimates as to the recovery of accounts receivable and inventory reserves, as well as those used in the determination of liabilities related to customer rebates, pension obligations, postretirement benefits, warranty, product liability,
group health insurancelitigation and taxation.Various assumptionsThe reserves for customer rebates, warranty, product liability, inventory reserves and
other factors underlie the determination of these significant estimates. The process of determining significant estimates isdoubtful accounts are fact specific andtakestake into account such factorssuchas specific customer situations, historical experience, and current and expected economicconditions, product mix,conditions. Changes in these reserves may be required if actual experience differs from the original estimates.The Company’s estimate of income taxes payable, deferred income taxes, and the effective tax rate is based on a complex analysis of many factors including interpretations of Federal, state and foreign income tax laws, the difference between tax and financial reporting basis of assets and liabilities, estimates of amounts currently due or owed in
some instances actuarial techniques. Briggs & Stratton reevaluates these significant factorsvarious jurisdictions, and current accounting standards. We review and update our estimates on a quarterly basis as facts and circumstanceschange. Historically,change and actual resultshave not differedare known. In addition, Federal, state and foreign taxing authorities periodically review the Corporation’s estimates and interpretation of income tax laws. Adjustments to the effective income tax rate and recorded assets and liabilities may occur in future periods if actual results differ significantly from original estimates and interpretations.The pension benefit obligation and related pension income are calculated in accordance with Statement of Financial Accounting Standard (SFAS) No. 87, “Employers Accounting for Pensions”, and are impacted by certain actuarial assumptions, including the discount rate and the expected rate of return on plan assets. These rates are evaluated on an annual basis considering such factors as market interest rates and historical asset performance. Actuarial valuations at June 27, 2004 used a discount rate of 6.25% and an expected rate of return on plan assets of 8.75%. A 0.25% decrease in the discount rate would decrease annual pension income by approximately $1.3 million. A 0.25% decrease in the expected return on plan assets would decrease our
estimates.annual pension income by approximately $2.0 million.The Other Postretirement Benefits Obligation and related expense charge are calculated in accordance with SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions” and are impacted by certain actuarial assumptions, including the health care trend rate. An increase of one percentage point in health care costs would increase the accumulated postretirement benefit obligation by $16.1 million and would increase the service and interest cost by $900 thousand. A corresponding decrease of one percentage point, would decrease the accumulated postretirement benefit by $15.0 million and decrease the service and interest cost by $900 thousand.
New Accounting Pronouncements
The Emerging Issues Task Force (EITF) issued EITF Abstract No. 01-09, "Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of Vendor's Products)". This was adopted during fiscal 2002. Pursuant to EITF No. 01-09, Briggs & Stratton was required to reclassify co-op advertising expense previously reported as selling expense to a reduction in net sales. The impact of adopting EITF 01-09 was to reduce net sales by $7.2 million, $2.3 million and $1.3 million in fiscal 2002, 2001 and 2000, respectively.In
June 2001,January 2003, the Financial Accounting Standards Board (“FASB”) issuedStatementFASB Interpretation No. 46 (Revised December 2003), “Consolidation ofFinancial Accounting Standards (SFAS)Variable Interest Entities, and an Interpretation of ARB No.141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets"51”.SFAS No. 141 provides forThis statement addresses theeliminationconsolidation by business enterprises of variable interest entities (“VIEs”), as defined by thepooling-of-interests method of accounting for business combinations with an acquisition date of July 1, 2001 or later. SFAS No. 142 prohibitsstatement. The Company has adopted theamortization of goodwill and other intangible assets with indefinite lives and requires periodic reassessment of the underlying value of such assets for impairment. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. On July 2, 2001, Briggs & Stratton adopted SFAS No. 142. Application of the nonamortization provision of SFAS No. 142 resulted in an increase in net income of approximately $.7 million in fiscal 2002. In August 2001, the Financial Accounting Standards Board issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." SFAS No. 144 also supersedes the accounting and reportingprovisions ofAPB Opinion No. 30, related tothis statement, evaluated its interest in VIEs and determined it is not thedisposalprimary beneficiary ofa segment of a business. Briggs & Stratton adopted SFAS No. 144 on July 1, 2002. Managementany VIEs. The Company also does notexpect that SFAS No. 144 will havebelieve its variable interest in any VIE is significant to its financial statements taken as amaterial impact on Briggs & Stratton's consolidated financial statements. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". SFAS No. 146 nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)" and requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002. Briggs & Stratton does not expect thatwhole. As such, the adoption of this statementwilldid not havea material impactan effect onitsthe Company’s financial condition or results ofoperationsoperations.In December 2003, the FASB revised SFAS No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits”. This statement revises employers’ disclosure about pension plans and other postretirement benefit plans. It does not change the measurement or recognition of those plans required by SFAS No. 87, “Employers’ Accounting for Pensions”, SFAS No. 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits”, and SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions”. It requires additional disclosures to those in the original SFAS No. 132. The adoption of this statement had no effect on the Company’s financial
position. 12ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKcondition or results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Briggs & Stratton is exposed to market risk from changes in foreign exchange and interest rates. To reduce the risk from changes in foreign exchange rates, Briggs & Stratton uses financial instruments. Briggs & Stratton does not hold or issue financial instruments for trading purposes.
FOREIGN CURRENCYForeign Currency
Briggs &
Stratton'sStratton’s earnings are affected by fluctuations in the value of the U.S. dollar against the Japanese Yen and the Euro. The Yen is used to purchase engines from Briggs &Stratton'sStratton’s jointventure, whileventure. Briggs & Stratton purchases components in Euros from third parties and receives Euros for certain products sold to European customers.Briggs & Stratton's foreign subsidiaries' earnings are also influenced by fluctuations of the local currency against the U.S. dollar as these subsidiaries purchase inventory from the parent in U.S. dollars.Forward foreign exchange contracts are used to partially hedge against the earnings effects of such fluctuations. At June30, 2002,27, 2004, Briggs & Stratton had the following forward foreign exchange contracts outstanding with the Fair ValueGains (Losses)(Gains) Losses shown (in thousands):
Hedge Notional Fair Market Conversion (Gain)/Loss Currency Value Value Currency at Fair Value - -------- -------- ----------- ---------- -------------Japanese Yen 239,485 2,008 U.S. (158) Euro 100,900 99,203 U.S. 5,554 Japanese Yen 26,881 399 Austrailian 10 Austrailian Dollars 1,950 1,086 U.S. (11) Canadian Dollars 900 592 U.S. 6 British Pounds 622 1,691 Austrailian (26) U.S. Dollars 421 748 Austrailian 26
Hedge Currency
Notional
ValueFair Market
ValueConversion
Currency(Gain)/Loss
at Fair ValueJapanese Yen
1,680,000 $ 15,698 U.S. $ (171 ) Euro
87,000 $ 105,747 U.S. $ 2,839 Australian Dollars
375 $ 261 U.S. $ 14 All of the above contracts expire within twelve months.
Fluctuations in currency exchange rates may also impact the
shareholders'shareholders’ investment in Briggs & Stratton. Amounts invested in Briggs &Stratton'sStratton’s non-U.S. subsidiaries are translated into U.S. dollars at the exchange rates in effect at fiscalyear end.year-end. The resulting cumulative translation adjustments are recorded inshareholders' investmentShareholders’ Investment ascumulative translation adjustments.Accumulated Other Comprehensive Income. The cumulative translation adjustments component ofshareholders' investmentShareholders’ Investment increased$4$3.0 million during the year. Using the year-end exchange rates, the total amount invested in non-U.S. subsidiaries on June30, 200227, 2004 was$26.8$59.4 million.INTEREST RATESInterest Rates
Briggs & Stratton is exposed to interest rate fluctuations on its borrowings.
Briggs & Stratton manages its interest rate exposure through a combination of fixed and variable rate debt.Depending on general economic conditions, Briggs & Stratton has typically used variable rate debt for short-term borrowings and fixed rate debt for longer-term borrowings.On June
30, 2002,27, 2004, Briggs & Stratton had the following short-term loans outstanding(amounts in(in thousands):
Weighted Average Currency Amount Interest Rate - -------- ------ ----------------Euro 15,074 5.46% U.S. Dollars 2,625 4.00% Canadian Dollars 493 3.10%
Currency
Amount Weighted Average
Interest RateAustralian Dollars
1,000 7.01 % Euro
993 8.00 % U.S. Dollars
1,220 2.98 % These loans carry variable interest rates. Assuming borrowings are outstanding for an entire year, an increase (decrease) of one percentage point in the weighted average interest rate, would increase (decrease) interest expense by
$.2 million.$32 thousand.Long-term loans, net of unamortized discount, consisted of the following
(amounts in(in thousands):
Description Amount Maturity - ----------- ------ --------5.00% Convertible Notes $140,000 2006 7.25% Notes $ 89,031 2007 8.875% Notes $269,991 2011
Description
Amount Maturity 7.25% Notes
$ 89,403 2007 8.875% Notes
$ 271,159 2011 These loans carry fixed rates of interest.
13ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CONSOLIDATED BALANCE SHEETS - --------------------------------------------------------------------------------
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA AS OF JUNE
30, 200227, 2004 ANDJULY 1, 2001 (inJUNE 29, 2003(in thousands)
ASSETS 2002 2001 --------- ---------CURRENT ASSETS Cash and Cash Equivalents ............................................... $ 215,945 $ 88,743 Receivables, Less Reserves of $1,703 and $1,599, Respectively ........... 201,910 145,138 Inventories- Finished Products and Parts ................................. 126,152 218,671 Work in Process ............................................. 61,748 99,247 Raw Materials ............................................... 3,059 3,782 ---------- ---------- Total Inventories ............................... 190,959 321,700 Future Income Tax Benefits .............................................. 41,383 38,434 Prepaid Expenses and Other Current Assets ............................... 19,747 19,415 ---------- ---------- Total Current Assets ............................ 669,944 613,430 GOODWILL, Net ......................................................................... 161,030 166,659 INVESTMENTS ........................................................................... 46,889 46,071 PREPAID PENSION ....................................................................... 60,343 36,275 DEFERRED LOAN COSTS, Net .............................................................. 9,304 10,429 OTHER LONG-TERM ASSETS, Net ........................................................... 6,308 6,970 PLANT AND EQUIPMENT: Land and Land Improvements............................................... 16,356 16,308 Buildings ............................................................... 153,049 150,396 Machinery and Equipment ................................................. 691,334 694,416 Construction in Progress ................................................ 18,902 29,071 ---------- ---------- 879,635 890,191 Less- Accumulated Depreciation .......................................... 484,420 473,830 ---------- ---------- Total Plant and Equipment, Net .................. 395,215 416,361 ---------- ---------- $1,349,033 $1,296,195 ========== ==========
2004 2003 ASSETS CURRENT ASSETS:
Cash and Cash Equivalents
$ 342,394 $ 324,815 Receivables, Less Reserves of $1,584 and $1,780, Respectively
230,510 201,948 Inventories:
Finished Products and Parts
206,638 128,998 Work in Process
124,483 76,929 Raw Materials
6,610 3,211 Total Inventories
337,731 209,138 Deferred Income Tax Asset
47,623 48,674 Prepaid Expenses and Other Current Assets
23,735 22,572 Total Current Assets
981,993 807,147 GOODWILL
151,991 159,756 INVESTMENTS
49,259 44,175 PREPAID PENSION
81,730 74,005 DEFERRED LOAN COSTS, Net
6,325 8,314 OTHER LONG-TERM ASSETS, Net
9,313 11,012 PLANT AND EQUIPMENT:
Land and Land Improvements
16,027 15,938 Buildings
163,621 156,823 Machinery and Equipment
674,047 689,100 Construction in Progress
14,292 14,803 867,987 876,664 Less - Accumulated Depreciation
511,445 505,880 Total Plant and Equipment, Net
356,542 370,784 $ 1,637,153 $ 1,475,193 The accompanying
notesNotes toconsolidated financial statementsConsolidated Financial Statements are an integral part of these statements.14- --------------------------------------------------------------------------------AS OF JUNE
30, 200227, 2004 ANDJULY 1, 2001 (inJUNE 29, 2003(in thousands, except per share data)
2002 2001 ---- ----LIABILITIES AND SHAREHOLDERS' INVESTMENT CURRENT LIABILITIES: Accounts Payable ........................................................ $ 103,648 $ 102,559 Domestic Notes Payable .................................................. 2,625 3,300 Foreign Loans ........................................................... 15,270 16,291 Accrued Liabilities- Wages and Salaries .......................................... 28,408 21,084 Warranty .................................................... 46,346 47,480 Other ....................................................... 56,828 47,161 ---------- ---------- Total Accrued Liabilities ....................... 131,582 115,725 Federal and State Income Taxes .......................................... 12,898 4,307 ---------- ---------- Total Current Liabilities ....................... 266,023 242,182 DEFERRED REVENUE ON SALE OF PLANT AND EQUIPMENT ....................................... 15,364 15,536 DEFERRED INCOME TAX LIABILITY ......................................................... 27,405 18,351 ACCRUED PENSION COST .................................................................. 15,750 14,494 ACCRUED EMPLOYEE BENEFITS ............................................................. 13,070 12,979 ACCRUED POSTRETIREMENT HEALTH CARE OBLIGATION ......................................... 62,753 61,767 LONG-TERM DEBT ........................................................................ 499,022 508,134 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' INVESTMENT: Common Stock- Authorized 60,000 Shares $.01 Par Value, Issued 28,927 in 2002 and 2001 .................. 289 289 Additional Pain-In Capital .............................................. 35,459 36,043 Retained Earnings ....................................................... 769,131 743,230 Accumulated Other Comprehensive Loss .................................... (6,626) (6,182) Unearned Compensation on Restricted Stock ............................... (199) (305) Treasury Stock at cost 7,288 Shares in 2002 and 7,328 Shares in 2001 ............... (348,408) (350,323) ---------- ---------- Total Shareholders' Investment .................. 449,646 422,752 ---------- ---------- $1,349,033 $1,296,195 ========== ==========
2004 2003 LIABILITIES AND SHAREHOLDERS’ INVESTMENT CURRENT LIABILITIES:
Accounts Payable
$ 120,409 $ 134,441 Domestic Notes Payable
1,220 2,075 Foreign Loans
1,907 865 Accrued Liabilities:
Wages and Salaries
55,528 44,667 Warranty
43,148 47,590 Accrued Postretirement Health Care Obligation
22,000 17,000 Other
56,349 54,757 Total Accrued Liabilities
177,025 164,014 Total Current Liabilities
300,561 301,395 DEFERRED REVENUE ON SALE OF PLANT AND EQUIPMENT
14,929 15,163 DEFERRED INCOME TAX LIABILITY
70,454 57,917 ACCRUED PENSION COST
20,603 20,368 ACCRUED EMPLOYEE BENEFITS
14,201 13,901 ACCRUED POSTRETIREMENT HEALTH CARE OBLIGATION
38,248 48,065 LONG-TERM DEBT
360,562 503,397 COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ INVESTMENT:
Common Stock -
Authorized 60,000 Shares $.01 Par Value, Issued 28,927 Shares
289 289 Additional Paid-in Capital
48,657 35,074 Retained Earnings
927,766 822,060 Accumulated Other Comprehensive Income (Loss)
4,028 (734 ) Unearned Compensation on Restricted Stock
(1,490 ) (287 ) Treasury Stock at cost, 3,382 Shares in 2004 and 7,142 Shares in 2003
(161,655 ) (341,415 ) Total Shareholders’ Investment
817,595 514,987 $ 1,637,153 $ 1,475,193 The accompanying
notesNotes toconsolidated financial statementsConsolidated Financial Statements are an integral part of these statements.15CONSOLIDATED STATEMENTS OF EARNINGS - --------------------------------------------------------------------------------Consolidated Statements of Earnings
FOR THE FISCAL YEARS ENDED JUNE 27, 2004, JUNE 29, 2003 AND JUNE 30, 2002
JULY 1, 2001 AND JULY 2, 2000 (in(in thousands, except per share data)
2002 2001 2000 ---- ---- ----NET SALES .................................................. $ 1,529,372 $ 1,310,173 $ 1,591,236 COST OF GOODS SOLD ......................................... 1,257,339 1,073,383 1,253,110 ----------- ----------- ----------- Gross Profit on Sales ................................ 272,033 236,790 338,126 ENGINEERING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES .................................. 153,675 137,684 132,897 ----------- ----------- ----------- Income from Operations ............................... 116,358 99,106 205,229 INTEREST EXPENSE ........................................... (44,433) (30,665) (21,267) GAIN ON DISPOSITION OF FOUNDRY ASSETS ...................... -- -- 16,545 OTHER INCOME, Net .......................................... 6,585 3,432 16,116 ----------- ----------- ----------- Income Before Provision for Income Taxes ............. 80,510 71,873 216,623 PROVISION FOR INCOME TAXES ................................. 27,390 23,860 80,150 ----------- ----------- ----------- NET INCOME ................................................. $ 53,120 $ 48,013 $ 136,473 =========== =========== =========== Weighted Average Shares Outstanding .................. 21,615 21,598 22,788 BASIC EARNINGS PER SHARE ................................... $ 2.46 $ 2.22 $ 5.99 =========== =========== =========== Diluted Average Shares Outstanding ................... 24,452 21,966 22,842 DILUTED EARNINGS PER SHARE ................................. $ 2.36 $ 2.21 $ 5.97 =========== =========== ===========
2004 2003 2002 NET SALES
$ 1,947,364 $ 1,657,633 $ 1,529,300 COST OF GOODS SOLD
1,507,492 1,329,554 1,259,336 Gross Profit on Sales
439,872 328,079 269,964 ENGINEERING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
205,663 178,157 153,712 Income from Operations
234,209 149,922 116,252 INTEREST EXPENSE
(37,665 ) (40,389 ) (44,433 ) OTHER INCOME, Net
8,460 9,045 8,691 Income Before Provision for Income Taxes
205,004 118,578 80,510 PROVISION FOR INCOME TAXES
68,890 37,940 27,390 NET INCOME
$ 136,114 $ 80,638 $ 53,120 Weighted Average Shares Outstanding
22,643 21,639 21,615 BASIC EARNINGS PER SHARE
$ 6.01 $ 3.73 $ 2.46 Diluted Average Shares Outstanding
25,340 24,480 24,452 DILUTED EARNINGS PER SHARE
$ 5.53 $ 3.49 $ 2.36 The accompanying
notesNotes toconsolidated financial statementsConsolidated Financial Statements are an integral part of these statements.16CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT - --------------------------------------------------------------------------------Consolidated Statements of Shareholders’ Investment
FOR THE FISCAL YEARS ENDED JUNE 27, 2004, JUNE 29, 2003 AND JUNE 30, 2002
JULY 1, 2001 AND JULY 2, 2000 (in(in thousands, except per share data)
Accumulated Unearned Additional Other Com- Compensation Common Paid-In Retained prehensive on Restricted Treasury Comprehensive Stock Capital Earnings Loss Stock Stock Income -------- -------- --------- ----------- -------- ------- --------BALANCES, JUNE 27, 1999 .................. $ 289 $ 37,657 $ 612,807 $ (1,732) $ (235) $(282,876) Comprehensive Income - Net Income .............................. -- -- 136,473 -- -- -- $ 136,473 Foreign Currency Translation Adjustments ........................... -- -- -- (1,816) -- -- (1,816) Unrealized Loss on Marketable Securities, net of tax of $(247) ........ -- -- -- (383) -- -- (383) --------- Total Comprehensive Income .............. -- -- -- -- -- -- $ 134,274 ========= Cash Dividends Paid ($1.20 per share) ....................... -- -- (27,300) -- -- -- Purchase of Common Stock for Treasury ............................ -- -- -- -- -- (69,083) Exercise of Stock Options ................ -- (1,194) -- -- -- 6,755 Restricted Stock Issued .................. -- 10 -- -- (60) 50 Amortization of Unearned Compensation ............................ -- -- -- -- 69 -- Shares Issued to Directors ............... -- 5 -- -- -- 29 -------------------------------------------------------------------------- BALANCES, JULY 2, 2000 ................... $ 289 $ 36,478 $ 721,980 $ (3,931) $ (226) $ (345,125) Comprehensive Income - Net Income .............................. -- -- 48,013 -- -- -- $ 48,013 Foreign Currency Translation Adjustments ............................ -- -- -- (2,530) -- -- (2,530) Unrealized Loss on Marketable Securities, net of tax of $(607) ....... -- -- -- (947) -- -- (947) Unrealized Gain on Derivatives .......... -- -- -- 1,226 -- -- 1,226 --------- Total Comprehensive Income .............. -- -- -- -- -- -- $ 45,762 ========= Cash Dividends Paid ($1.24 per share) ....................... -- -- (26,763) -- -- -- Purchase of Common Stock for Treasury ............................ -- -- -- -- -- (6,118) Exercise of Stock Options ................ -- (368) -- -- -- 643 Restricted Stock Issued .................. -- (58) -- -- (181) 239 Amortization of Unearned Compensation ............................ -- -- -- -- 102 -- Shares Issued to Directors ............... -- (9) -- -- -- 38 -------------------------------------------------------------------------- BALANCES, JULY 1, 2001 ................... $ 289 $ 36,043 $ 743,230 $ (6,182) $ (305) $(350,323) Comprehensive income - Net Income .............................. -- -- 53,120 -- -- -- $ 53,120 Foreign Currency Translation Adjustments ............................ -- -- -- 4,017 -- -- 4,017 Unrealized Loss on Marketable Securities, net of tax of $(95) ........ -- -- -- (148) -- -- (148) Unrealized Loss on Derivatives .......... -- -- -- (4,313) -- -- (4,313) --------- Total Comprehensive Income .............. -- -- -- -- -- -- $ 52,676 ========= Cash Dividends Paid ($1.26 per share) ....................... -- -- (27,219) -- -- -- Exercise of Stock Options ................ -- (576) -- -- -- 1,877 Amortization of Unearned Compensation ............................ -- -- -- -- 106 -- Shares Issued to Directors ............... -- (8) -- -- -- 38 -------------------------------------------------------------------------- BALANCES, JUNE 30, 2002 .................. $ 289 $ 35,459 $ 769,131 $ (6,626) $ (199) $(348,408) ==========================================================================
Common
StockAdditional
Paid-In
CapitalRetained
EarningsAccumulated
Other Comprehensive
Income (Loss)Unearned
Compensation
on Restricted
StockTreasury
StockComprehensive
IncomeBALANCES, JULY 1, 2001
$ 289 $ 36,043 $ 743,230 $ (6,182 ) $ (305 ) $ (350,323 ) Comprehensive Income:
Net Income
— — 53,120 — — — $ 53,120 Foreign Currency Translation Adjustments
�� — — — 4,017 — — 4,017 Unrealized Loss on Marketable Securities, net of tax of $(95)
— — — (148 ) — — (148 ) Unrealized Loss on Derivatives
— — — (4,313 ) — — (4,313 ) Total Comprehensive Income
— — — — — — $ 52,676 Cash Dividends Paid ($1.26 per share)
— — (27,219 ) — — — Exercise of Stock Options
— (576 ) — — — 1,877 Amortization of Unearned Compensation
— — — — 106 — Shares Issued to Directors
— (8 ) — — — 38 BALANCES, JUNE 30, 2002
$ 289 $ 35,459 $ 769,131 $ (6,626 ) $ (199 ) $ (348,408 ) Comprehensive Income:
Net Income
— — 80,638 — — — $ 80,638 Foreign Currency Translation Adjustments
— — — 4,454 — — 4,454 Unrealized Gain on Marketable Securities, net of tax of $581
— — — 901 — — 901 Unrealized Gain on Derivatives
— — — 3,100 — — 3,100 Minimum Pension Liability Adjustment, net of tax of $(1,638)
— — — (2,563 ) — — (2,563 ) Total Comprehensive Income
— — — — — — $ 86,530 Cash Dividends Paid ($1.28 per share)
— — (27,709 ) — — — Exercise of Stock Options
— (234 ) — — — 5,835 Restricted Stock Issued
— (97 ) — — (238 ) 335 Amortization of Unearned Compensation
— — — — 150 — Issuance of Treasury Shares
— (44 ) — — — 760 Shares Issued to Directors
— (10 ) — — — 63 BALANCES, JUNE 29, 2003
$ 289 $ 35,074 $ 822,060 $ (734 ) $ (287 ) $ (341,415 ) Comprehensive Income:
Net Income
— — 136,114 — — — $ 136,114 Foreign Currency Translation Adjustments
— — — 3,042 — — 3,042 Unrealized Gain on Derivatives
— — — 487 — — 487 Minimum Pension Liability Adjustment, net of tax of $(788)
— — — 1,233 — — 1,233 Total Comprehensive Income
— — — — — — $ 140,876 Cash Dividends Paid ($1.32 per share)
— — (30,408 ) — — — Exercise of Stock Options
— 7,667 — — — 41,194 Restricted Stock Issued
— 322 — — (1,494 ) 1,171 Amortization of Unearned Compensation
— — — — 291 — Issuance of Treasury Shares
— 5,546 — — — 137,270 Shares Issued to Directors
— 48 — — — 125 BALANCES, JUNE 27, 2004
$ 289 $ 48,657 $ 927,766 $ 4,028 $ (1,490 ) $ (161,655 ) The accompanying
notesNotes toconsolidated financial statementsConsolidated Financial Statements are an integral part of these statements.17CONSOLIDATED STATEMENTS OF CASH FLOWS - --------------------------------------------------------------------------------Consolidated Statements of Cash Flows
FOR THE FISCAL YEARS ENDED JUNE 27, 2004, JUNE 29, 2003 AND JUNE 30, 2002
JULY 1, 2001 AND JULY 2, 2000 (in(in thousands)
2002 2001 2000 ---- ---- ----CASH FLOWS FROM OPERATING ACTIVITIES: Net Income ............................................... $ 53,120 $ 48,013 $ 136,473 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities - Depreciation and Amortization .......................... 65,968 59,711 53,277 Equity in Earnings of Unconsolidated Affiliates ........ (6,181) (5,041) (13,333) (Gain) Loss on Disposition of Plant and Equipment ...... 3,192 1,493 (14,167) Provision for Deferred Income Taxes .................... 20,286 17,973 1,542 Change in Operating Assets and Liabilities, Net of Effects of Acquisition - (Increase) Decrease in Receivables ..................... (56,772) 34,686 51,837 (Increase) Decrease in Inventories ..................... 120,719 (7,307) (121,685) Increase in Prepaid Expenses and Other Current Assets .................................. (2,996) (50) (2,488) Increase (Decrease) in Accounts Payable, Accrued Liabilities and Income Taxes .................. 26,061 (46,740) 1,519 (Increase) Decrease in Prepaid Pension ................. (22,812) (28,378) (10,509) Other, Net ............................................. (768) (6,392) (4,984) --------- --------- --------- Net Cash Provided by Operating Activities ............ 199,817 67,968 77,482 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to Plant and Equipment ......................... (43,928) (61,322) (71,441) Proceeds Received on Disposition of Plant and Equipment .. 406 4,152 23,511 Cash Paid for Acquisition, Net of Cash Acquired .......... - (267,174) - Other, Net ............................................... 5,120 6,296 5,142 --------- --------- --------- Net Cash Used by Investing Activities ................ (38,402) (318,048) (42,788) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net Borrowings (Repayments) on Loans and Notes Payable ... (1,696) (42,574) 44,005 Borrowings (Repayments) on Long-Term Debt ................ (10,393) 399,415 (30,000) Cash Dividends Paid ...................................... (27,219) (26,763) (27,300) Purchase of Common Stock for Treasury .................... - (6,118) (69,083) Proceeds from Exercise of Stock Options .................. 1,078 275 5,561 --------- --------- --------- Net Cash Provided by (Used by) Financing Activities... (38,230) 324,235 (76,817) --------- --------- --------- EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS ..................... 4,017 (2,401) (1,694) --------- --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ......................................... 127,202 71,754 (43,817) CASH AND CASH EQUIVALENTS: Beginning of Year ........................................ 88,743 16,989 60,806 --------- --------- --------- End of Year .............................................. $ 215,945 $ 88,743 $ 16,989 ========= ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest Paid ............................................ $ 39,669 $ 26,339 $ 21,202 ========= ========= ========= Income Taxes Paid ........................................ $ 2,904 $ 7,831 $ 84,535 ========= ========= =========
2004 2003 2002 CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income
$ 136,114 $ 80,638 $ 53,120 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation and Amortization
66,898 63,526 65,968 Equity in Earnings of Unconsolidated Affiliates
(7,876 ) (5,224 ) (6,181 ) Loss on Disposition of Plant and Equipment
7,390 3,850 3,192 Provision for Deferred Income Taxes
12,800 24,278 20,286 Change in Operating Assets and Liabilities, Net of Effects of Acquisition:
Increase in Receivables
(28,588 ) (5,958 ) (56,684 ) (Increase) Decrease in Inventories
(128,594 ) (11,932 ) 121,713 Decrease (Increase) in Prepaid Expenses and Other Current Assets
2,017 (4,663 ) (1,519 ) Increase in Accounts Payable, Accrued Liabilities and Income Taxes
4,696 44,321 24,979 Increase in Prepaid Pension
(6,070 ) (13,566 ) (22,812 ) Other, Net
(13,023 ) (7,875 ) (2,245 ) Net Cash Provided by Operating Activities
45,764 167,395 199,817 CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Plant and Equipment
(52,962 ) (40,154 ) (43,928 ) Proceeds Received on Disposition of Plant and Equipment
720 3,464 406 Refund of Cash Paid for Acquisition
5,686 — — Increase in Investment in China Joint Venture
— 3,531 — Other, Net
4,392 6,330 5,120 Net Cash Used by Investing Activities
(42,164 ) (26,829 ) (38,402 ) CASH FLOWS FROM FINANCING ACTIVITIES:
Net Borrowings (Repayments) on Loans and Notes Payable
187 (14,955 ) (1,696 ) Repayments on Long-Term Debt
(22 ) — (10,393 ) Issuance Cost of Debt
(1,789 ) — — Cash Dividends Paid
(30,408 ) (27,709 ) (27,219 ) Proceeds from Exercise of Stock Options
45,314 5,490 1,078 Net Cash Provided by (Used by) Financing Activities
13,282 (37,174 ) (38,230 ) EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
697 5,478 4,017 NET INCREASE IN CASH AND CASH EQUIVALENTS
17,579 108,870 127,202 CASH AND CASH EQUIVALENTS:
Beginning of Year
324,815 215,945 88,743 End of Year
$ 342,394 $ 324,815 $ 215,945 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest Paid
$ 38,884 $ 39,448 $ 40,488 Income Taxes Paid
$ 53,253 $ 20,724 $ 3,222 The accompanying
notesNotes toconsolidated financial statementsConsolidated Financial Statements are an integral part of these statements.18NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - --------------------------------------------------------------------------------Notes to Consolidated Financial Statements
FOR THE FISCAL YEARS ENDED JUNE 27, 2004, JUNE 29, 2003 AND JUNE 30, 2002
JULY 1, 2001 AND JULY 2, 2000(1)
NATURE OF OPERATIONS:Nature of Operations:Briggs & Stratton
("(“theCompany"Company”) is a U.S. based producer of air cooled gasoline engines. These engines are sold worldwide, primarily to original equipment manufacturers of lawn and garden equipment and other gasoline engine powered equipment. Additionally, through theCompany'sCompany’s wholly owned subsidiary,Generac PortableBriggs & Stratton Power Products Group, LLC(GPP)(“BSPPG”), thecompanyCompany is a designer, manufacturer and marketer of portable and standby generators, pressure washers and related accessories.GPP'sBSPPG’s products are sold throughout the United States, Canada and Europe.(2)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:Summary of Significant Accounting Policies:Fiscal Year: The
Company'sCompany’s fiscal year consists of 52 or 53 weeks, ending on the Sunday nearest the last day of June in each year. Therefore, the20022004, 2003 and20012002 fiscal years were 52weeks long, and the 2000 fiscal year was 53weeks long. All references to years relate to fiscal years rather than calendar years.Principles of Consolidation: The consolidated financial statements include the accounts of the Company and its
whollymajority owned domestic and foreign subsidiaries after elimination of intercompany accounts and transactions.Accounting Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.
Cash and Cash Equivalents: This caption includes cash, commercial paper and certificates of deposit. The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
Inventories: Inventories are stated at cost, which does not exceed market. The last-in, first-out (LIFO) method was used for determining the cost of approximately
68%56% of total inventories at June30, 200227, 2004 and77%60% of total inventories atJuly 1, 2001.June 29, 2003. The cost for the remaining portion of the inventories was determined using the first-in, first-out (FIFO) method. During fiscal 2003 and 2002, a reduction in inventory quantities resulted in a liquidation of LIFO inventories carried at lower costs prevailing in prior years. The liquidation of these inventorieshasreduced cost ofsalesgoods sold by $0.2 million in 2003 and $2.6 million in 2002. There was no such reduction of inventory in fiscal 2004. If the FIFO inventory valuation method had been used exclusively, inventories would have been$44.8$51.4 million and$51.2$47.3 million higher inthe respective years.2004 and 2003, respectively. The LIFO inventory adjustment was determined on an overall basis, and accordingly, each class of inventory reflects an allocation based on the FIFO amounts.Goodwill: This caption represents goodwill related to the acquisition of BSPPG in fiscal 2001 (See Note 3). Goodwill reflects the cost of an acquisition in excess of the fair values assigned to identifiable net assets acquired. The Company performed the required goodwill impairment test in fiscal 2004, 2003 and 2002, and found no impairment of the asset.
Investments: This caption represents the
Company's investmentsCompany’s investment inthreeits 50%-owned joint ventures and preferred stock in a privately held iron castingsbusiness and common stock in a publicly traded software company. The common stock in the publicly traded company is being classified as available-for-sale and is reported at a fair market value. Unrealized losses incurred on this stock are recorded as a component of Accumulated Other Comprehensive Loss in the Shareholders' Investment section of the balance sheet.business. The investments in the joint ventures and the privately held business are accounted for under the equity method. In fiscal 2003, the Company determined losses on an investment in common stock of a publicly traded software company were “other than temporary”, and as a result, the Company reclassified the pretax unrealized loss of $1.8 million to earnings.Deferred Loan Costs: Expenses associated with the issuance of debt instruments are capitalized and are being amortized over the terms of the respective financing arrangement using the straight-line method over periods ranging from five to ten years. Accumulated amortization related to open issues amounted to
$1.6$5.9 million as of June30, 200227, 2004 and$.1$5.1 million as ofJuly 1, 2001.June 29, 2003. In fiscal 2004, the Company expensed $1.7 million in capitalized costs upon conversion of the 5.00% Convertible Senior Notes.Notes…
Other Long-Term Assets: This caption
primarily representsincludes costs of software used in theCompany'sCompany’s business. Amortization of capitalized software is computed on an item-by-item basis over a period of three to ten years, depending on the estimated useful life of the software. Accumulated amortization amounted to$8.4$8.7 million as of June30, 200227, 2004 and$7.4$6.0 million as ofJuly 1, 2001. Goodwill: ThisJune 29, 2003. In fiscal 2003, this captionrepresents goodwill related to the acquisition of GPPalso included a long-term asset associated with interest rate swaps designated as effective fair value hedges. See discussion infiscal 2001 (SeeNote3). Goodwill reflects the cost of an acquisition in excess of the fair values assigned to identifiable net assets acquired. The carrying value of goodwill was 19NOTES ... - -------------------------------------------------------------------------------- $161.0 million and $166.7 million at June 30, 2002 and July 1, 2001, respectively. In accordance with SFAS 142, no goodwill amortization was recorded in fiscal year 2002, $1.1 million was reported in fiscal year 2001. The Company performed the required impairment test of goodwill in fiscal 2002 and found no impairment of the asset.7.Plant and Equipment and Depreciation: Plant and equipment are stated at cost and depreciation is computed using the straight-line method at rates based upon the estimated useful lives of the assets (20-30 years for land improvements, 20-50 years for buildings and 8-16 years for machinery and equipment).
Expenditures for repairs and maintenance are charged to expense as incurred. Expenditures for major renewals and betterments, which significantly extend the useful lives of existing plant and equipment, are capitalized and depreciated. Upon retirement or disposition of plant and equipment, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized in
other income.income from operations.Impairment of Long-Lived Assets: Property, plant and equipment and other long-term assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected undiscounted cash flows is less than the carrying value of the related asset or group of assets, a loss is recognized for the difference between the fair value and carrying value of the asset or group of assets. There were no adjustments to the carrying value of long-lived assets in fiscal
2002, 2001 and 2000. In August 2001, the Financial Accounting Standards Board issued SFAS No. 144, "Accounting for the Impairment2004, 2003 orDisposal of Long-Lived Assets," which supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." SFAS No. 144 also supersedes the accounting and reporting provisions of APB Opinion No. 30, related to the disposal of a segment of a business.2002.Warranty: The Company
adopted SFAS No. 144recognizes the cost associated with its standard warranty onJuly 1, 2002. Management does not expect SFAS No. 144 to haveengines and power products at the time of sale. The amount recognized is based on historical failure rates and current claim cost experience. The following is amaterial impact onreconciliation of theCompany's consolidated financial statements. Revenue Recognition: Revenue is recognized when title to the products being sold transfers to the customer, which is upon shipment.changes in accrued warranty costs for fiscal year 2004 and 2003 (in thousands):
2004 2003 Balance, Beginning of Period
$ 47,590 $ 46,346 Payments
(30,761 ) (30,613 ) Provision for Current Year Warranties
29,150 27,605 (Credit) Provision for Prior Years Warranties
(2,831 ) 4,252 Balance, End of Period
$ 43,148 $ 47,590 Deferred Revenue on Sale of Plant and Equipment: In fiscal 1997, the Company sold its Menomonee Falls, Wisconsin facility for approximately $16.0 million. The provisions of the contract state that the Company will continue to own and occupy the warehouse portion of the facility for a period of up to ten years (the Reservation Period). The contract also contains a buyout clause, at the
buyer'sbuyer’s option and under certain circumstances, of the remaining Reservation Period. Under the provisions of SFAS No. 66,"Accounting“Accounting for Sales of Real Estate,"” the Company is required to account for this as a financing transaction as long as it continues to have substantial involvement with the facility during the Reservation Period or until the buyout option is exercised. Under this method, the cash received is reflected as deferred revenue and the assets and the accumulated depreciation remain on theCompany'sCompany’s books. Depreciation expense continues to be recorded each period and imputed interest expense is also recorded and added to deferred revenue. Offsetting this is the imputed fair value lease income on the non-Briggs & Stratton occupied portion of the building. A pretax gain, which will be recognized at the earlier of the exercise of the buyout option or the expiration of the Reservation Period, is estimated to be$10 - $12$5 million. The annual cost of operating the warehouse portion of the facility is not material.Revenue Recognition: Net sales includes sales of engines, power products, and related component parts for servicing engines, net of allowances for cash discounts, customer volume rebates and discounts, and advertising allowances. In accordance with Staff Accounting Bulletin No. 101 as amended, the Company recognizes revenue when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable, and collectibility is reasonably assured. This is generally upon shipment, except for certain international shipments, where revenue is recognized when the customer receives the product.
Notes…
The Company also offers a variety of customer rebates and sales incentives. The Company accrues for estimated rebates/incentives at the time of sale, as a reduction in net sales.
Income Taxes: The Provision for Income Taxes includes Federal, state and foreign income taxes currently payable and those deferred
or prepaidbecause of temporary differences between the financial statement and tax basis of assets and liabilities. TheFutureDeferred Income TaxBenefits representAsset represents temporary differences relating to current assets and current liabilities, and the Deferred Income TaxAssets/Liabilities representLiability represents temporary differences relating to noncurrent assets and liabilities.Retirement Plans: The Company has noncontributory, defined benefit retirement plans and postretirement benefit plans covering certain employees. Retirement benefits represent a form of deferred compensation, which are subject to change due to changes in assumptions. Management reviews underlying assumptions on an annual basis. Refer to Note 13 of the Notes to Consolidated Financial Statements.
Research and Development Costs: Expenditures relating to the development of new products and processes, including significant improvements and refinements to existing products, are expensed as incurred. The amounts charged against income were $25.9 million in fiscal 2004, $26.4 million in fiscal 2003 and $23.7 million in fiscal
2002, $21.5 million in fiscal 2001 and $24.3 million in fiscal 2000. 20NOTES ... - --------------------------------------------------------------------------------2002.Advertising Costs: Advertising costs, included in Engineering, Selling, General and Administrative Expenses on the accompanying Consolidated Statements of Earnings, are expensed as incurred. These expenses totaled $15.0 million in fiscal 2004, $13.2 million in fiscal 2003 and $8.3 million in fiscal
2002, $7.8 million in fiscal 2001 and $6.8 million in fiscal 2000.2002.The Company
adopted EITF No. 01-09, "Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of Vendor's Products)," in the third quarter of fiscal 2002. Pursuant to EITF No. 01-09, the Company was required to reclassifyreports co-op advertisingexpense previously reported as sellingexpense as a reduction in net sales.The impact of adopting EITF 01-09 was to reduceCo-op advertising expense reported as a reduction in net salesby $7.2 million, $2.3 million and $1.3totaled $12.8 million in fiscal2002, 20012004, $9.5 million in fiscal 2003 and2000, respectively.$7.2 million in fiscal 2002.Shipping and Handling Fees and Costs: Revenue received from shipping and handling fees is reflected in net sales. Shipping fee revenue for fiscal 2004, 2003 and 2002
2001 and 2000was $1.8 million, $1.6 million$1.7 millionand$2.0$1.6 million, respectively. Shipping and handling costs are included in cost of goods sold.Foreign Currency Translation: Foreign currency balance sheet accounts are translated into United States dollars at the rates of exchange in effect at fiscal
year end.year-end. Income and expenses are translated at the average rates of exchange in effect during the year. The related translation adjustments are made directly to a separate component ofShareholders'Shareholders’ Investment.Earnings Per Share:
The Company'sBasic earnings per share,werefor each period presented, is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share, for each period presented,wereis computedonreflecting theassumptionpotential dilution that would occur if options or other contracts to issue common stockoptionswere exercised or converted into common stock at the beginning of theperiods reported. The difference between weighted average shares outstanding and diluted average shares outstanding reflects the dilutive effects of stock options and the convertible senior notes.period.The shares outstanding used to compute diluted earnings per share for fiscal
2002, 20012004, 2003 and20002002 excluded outstanding options to purchase1,841,640, 1,679,564214,260, 1,675,790 and1,079,5641,886,640 shares of common stock, respectively, with weighted-average exercise prices of$55.14, $56.33$74.53, $53.40 and$61.95,$55.20, respectively. The options were excluded because their exercise prices were greater than the average market price of the common shares, and their inclusion in the computation would have been antidilutive.Notes…
Information on earnings per share is as follows (in thousands,
of dollars,except per share data):
Fiscal Year Ended ------------------------------------------------------ June 30, 2002 July 1, 2001 July 2, 2000 ------------- ------------ ------------Net income used in basic earnings per share ................................ $ 53,120 $ 48,013 $ 136,473 Adjustment to net income to add after-tax interest expense on convertible notes .......................................................... 4,620 576 - ----------- ---------- ---------- Adjusted net income used in diluted earnings per share ..................... $ 57,740 $ 48,589 $ 136,473 =========== ========== ========== Average shares of common stock outstanding ................................. 21,615 21,598 22,788 Incremental common shares applicable to common stock options based on the common stock average market price during the period ...................... 6 10 52 Incremental common shares applicable to restricted common stock based on the common stock average market price during the period .................. 5 5 2 Incremental common shares applicable to convertible notes based on the conversion provisions of the convertible note ............................ 2,826 353 - ----------- ---------- ---------- Diluted average common shares outstanding .................................. 24,452 21,966 22,842 =========== ========== ==========21NOTES ... - --------------------------------------------------------------------------------
Fiscal Year Ended June 27, 2004 June 29, 2003 June 30, 2002 Net Income Used in Basic Earnings Per Share
$ 136,114 $ 80,638 $ 53,120 Adjustment to Net Income to Add After-tax Interest Expense on Convertible Notes
4,053 4,760 4,620 Adjusted Net Income Used in Diluted Earnings Per Share
$ 140,167 $ 85,398 $ 57,740 Average Shares of Common Stock Outstanding
22,643 21,639 21,615 Incremental Common Shares Applicable to Common Stock Options Based on the Common Stock Average Market Price During the Period
180 — 6 Incremental Common Shares Applicable to Restricted Common Stock Based on the Common Stock Average Market Price During the Period
13 15 5 Incremental Common Shares Applicable to Convertible Notes Based on the Conversion Provisions of the Convertible Notes
2,504 2,826 2,826 Diluted Average Common Shares Outstanding
25,340 24,480 24,452 Comprehensive Income:
SFAS No. 130, "Reporting Comprehensive Income," requires the reporting of comprehensive income in addition to net income from operations.Comprehensive income is a more inclusive financial reporting method that includes disclosure of financial information that historically has not been recognized in the calculation of net income. The Company has chosen to report Comprehensive Income and Accumulated Other Comprehensive Income (Loss) which encompasses net income, unrealized gain (loss) on marketable securities,foreign currencycumulative translationandadjustments, unrealized gain (loss) on derivatives and minimum pension liability adjustment in the Consolidated Statements ofShareholders'Shareholders’ Investment. Information onaccumulated other comprehensive income (loss)Accumulated Other Comprehensive Income (Loss) is as follows (inthousands of dollars)thousands):
Unrealized Accumulated Gain (Loss) Cumulative Unrealized Other on Marketable Translation Gain (Loss) on Comprehensive Securities Adjustments Derivatives Loss ---------- ----------- ----------- ----Balance at June 27, 1999 ...... $ 577 $ (2,309) $ - $ (1,732) Fiscal year change ............ (383) (1,816) - (2,189) ---------- --------- ---------- --------- Balance at July 2, 2000 ....... 194 (4,125) - (3,931) Fiscal year change ............ (947) (2,530) 1,226 (2,251) ---------- --------- ---------- --------- Balance at July 1, 2001 ....... (753) (6,655) 1,226 (6,182) Fiscal year change ............ (148) 4,017 (4,313) (444) ---------- --------- ---------- --------- Balance at June 30, 2002 ...... $ (901) $ (2,638) $ (3,087) $ (6,626) ========== ========= ========== =========
Unrealized
Gain (Loss)
on Marketable
SecuritiesCumulative
Translation
AdjustmentsUnrealized
Gain (Loss) on
DerivativesMinimum
Pension
Liability
AdjustmentAccumulated
Other
Comprehensive
Income (Loss)Balance at July 1, 2001
$ (753 ) $ (6,655 ) $ 1,226 $ — $ (6,182 ) Fiscal Year Change
(148 ) 4,017 (4,313 ) — (444 ) Balance at June 30, 2002
(901 ) (2,638 ) (3,087 ) — (6,626 ) Fiscal Year Change
901 4,454 3,100 (2,563 ) 5,892 Balance at June 29, 2003
— 1,816 13 (2,563 ) (734 ) Fiscal Year Change
— 3,042 487 1,233 4,762 Balance at June 27, 2004
$ — $ 4,858 $ 500 $ (1,330 ) $ 4,028 Derivatives:
The CompanyDerivatives are recorded on the balance sheet as assets or liabilities, measured at fair value. Briggs & Stratton enters into derivative contracts designated as cash flow hedges to manage its foreign currency exposures. These instruments generally do not have a maturity of more than twelve months.SFAS No. 133 "Accounting for Derivative InstrumentsBriggs & Stratton has used interest rate swaps designated as fair value hedges to manage its debt portfolio. These instruments generally have maturities andHedging Activities" requires companies to record derivatives onterms consistent with thebalance sheet as assets or liabilities, measured at fair value. Any changesunderlying debt instrument.Changes in the fair value of
these instrumentscash flow hedges are recordedinon theincome statementConsolidated Statement of Earnings orother comprehensive income. On July 2, 2000, the impactas a component ofadopting SFAS No. 133 onAccumulated Other ComprehensiveLoss resulted in a loss of $15 thousand. The Company reclassified immaterial amounts to the income statement during fiscal 2002 and 2001. The cumulative effect of adopting SFAS No. 133 on the results of operations was immaterial. During the fiscal year, there were no derivative instruments that were deemed to be ineffective.Income (Loss). The amounts included in Accumulated Other ComprehensiveLossIncome (Loss) will be reclassified into income when the forecastedtransaction occurs,transactions occur, generally within the next twelve months. These forecasted transactions represent the exporting of products for whichthe CompanyBriggs & Stratton will receive foreign currency and the importing of products for whichthe Companyit will be required to pay in a foreign currency. Changes in the fair value of fair value hedges related to interest rate swaps are recorded as an increase/decrease to long-term debt. Changes in the fair value of all derivatives deemed to be ineffective are recorded as either income or expense in the accompanying Consolidated Statements of Earnings. See discussion in Note 12.Reclassification: Certain amounts in prior year financial statements have been reclassified to conform to current year presentation.
Business Combinations:Notes…
New Accounting Pronouncements: In
June 2001,January 2003, the Financial Accounting Standards Board (“FASB”) issuedSFASFASB Interpretation No.141, "Business Combinations"46 (Revised December 2003), “Consolidation of Variable Interest Entities, andSFASan interpretation of ARB No.142, "Goodwill and Other Intangible Assets" having a required effective date for fiscal years beginning after December 31, 2001. Under51”. This statement addresses thenew rules, goodwill and other intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance withconsolidation by business enterprises of variable interest entities (“VIEs”), as defined by theStatements. Other intangible assets will continue to be amortized over their useful lives.statement. The Company has adoptedthe new rules on accounting for goodwill and other intangible assets in the first quarter of fiscal 2002. The Company performed the required impairment test of goodwill and indefinite lived intangible assets in fiscal 2002 and found no impairment of the assets as of June 30, 2002. Hadthe provisions ofSFAS No. 142 been appliedthis statement, evaluated its interest infiscal 2001,VIEs and determined it is not theCompany's fiscal 2001 net income would have increased $.7 million, or $.03 per basic and diluted earnings per share. Future Accounting Pronouncement: In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" SFAS No. 146 nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)" and requires that a liability for a cost 22NOTES ... - -------------------------------------------------------------------------------- associated with an exit or disposal activity be recognized when the liability is incurred. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002.primary beneficiary of any VIEs. The Company also does notexpect thatbelieve its variable interest in any VIE is significant to the financial statements taken as a whole. As such, the adoption of this statementwilldid not havea material impactan effect on theCompany'sCompany’s financial condition or results ofoperationsoperations.In December 2003, the FASB revised SFAS No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits”. This statement revises employers’ disclosure about pension plans and other postretirement benefit plans. It does not change the measurement or recognition of those plans required by SFAS No. 87, “Employers’ Accounting for Pensions”, SFAS No. 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits” and SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions”. It requires additional disclosures to those in the original SFAS No. 132. This statement is effective for fiscal 2004. The adoption had no effect on the Company’s financial
position.condition or results of operations.(3)
ACQUISITION: On May 15, 2001, theAcquisition:The Company acquired Generac Portable Products, Inc. on May 15, 2001. Generac Portable Products, Inc. was merged with, and into Generac Portable Products, LLC
(GPP)on June 30, 2002, and changed its name to Briggs & Stratton Power Products Group, LLC effective December 31, 2002.GPPBSPPG is a designer, manufacturer and marketer of portable and standby generators, pressure washers and related accessories.The aggregate purchase price of $288.1 million included $267.6 million of cash and $20.5 million of liabilities assumed. The cash paid included $.5 million of cash acquired and $4.5 million of direct acquisition costs, and was funded through the issuance of the 8.875% senior notes as more fully described in Note 6.The provisions of the acquisition
included a contingent purchase price based on the operating results of GPP. The Company will not pay any additional purchase price pursuant to these provisions. The provisions of the acquisition also provideprovided for apotentialpurchase price refund based on the final valuation of the acquired receivables and inventory. Theamount of thisCompany received a purchase price refundif any, will beof $5.7 million, which was recorded as a reduction in goodwillwhen it is received. The acquisition has been accounted for using the purchase method of accounting. The purchase price was allocated on a preliminary basis to identifiable assets acquiredduring fiscal 2004.In 2004 and
liabilities assumed based upon their estimated fair values, with the excess purchase price recorded as goodwill. This initial purchase price allocation resulted in approximately $167.7 million of goodwill which was amortized on a straight-line basis over twenty years until the Company adopted SFAS No. 142 on July 2, 2001. Under SFAS No. 142, goodwill is no longer amortized, but is subject to periodic impairment tests. In 20022003, the Company reduced goodwill by approximately$5.7$2.1 and $1.3 million,related torespectively, reflecting thefinalizationtax benefit associated with the amortization ofthe purchase price allocation. This decrease was primarily the result of recording $16.0 million of deferred taxes related to differences in GPP's financial reporting versusacquired goodwill for taxreporting, offset by approximately $10.3 million of additional inventory and fixed asset reserves. The following table sets forth the unaudited pro forma information for the Company as if the acquisition of GPP had occurred on July 2, 2000 (in millions, except per share data):purposes.
2001 ----Net Sales ......................... $ 1,465.3 Net Income ........................ $ 26.6 Basic Earnings Per Share .......... $ 1.23 Diluted Earnings Per Share ........ $ 1.21(4)
INCOME TAXES:Income Taxes:The provision for income taxes consists of the following (in
thousands of dollars)thousands):
2002 2001 2000 Current ---- ---- ----Federal ............ $ 4,950 $ 4,042 $ 66,169 State .............. 587 594 10,425 Foreign ............ 1,567 1,251 2,014 -------- -------- -------- 7,104 5,887 76,608 Deferred ............. 20,286 17,973 1,542 -------- -------- -------- $ 27,390 $ 23,860 $ 80,150 ======== ======== ========
2004 2003 2002 Current
Federal
$ 46,506 $ 11,404 $ 4,950 State
8,039 291 587 Foreign
1,545 1,967 1,567 56,090 13,662 7,104 Deferred
12,800 24,278 20,286 $ 68,890 $ 37,940 $ 27,390 A reconciliation of the U.S. statutory tax rates to the effective tax rates follows:
2002 2001 2000 ---- ---- ----U.S. statutory rate ..... 35.0% 35.0% 35.0% State taxes, net of Federal tax benefit ... 2.4% 2.5% 3.2% Foreign Sales Corporation tax benefit ........... (1.5%) (3.5%) (.5%) Other ................... (1.9%) (.8%) (.7%) ---- ---- ---- Effective tax rate ...... 34.0% 33.2% 37.0% ==== ==== ====The Company received a refund of Foreign Sales Corporation tax benefits in fiscal 2002 and 2001.
2004 2003 2002 U.S. Statutory Rate
35.0 % 35.0 % 35.0 % State Taxes, Net of Federal Tax Benefit
3.0 % 1.8 % 2.4 % Foreign Tax Benefits
(0.9 %) (3.3 %) (1.2 %) Resolution of Prior Period Tax Matters
(2.2 %) — — Other
(1.3 %) (1.5 %) (2.2 %) Effective Tax Rate
33.6 % 32.0 % 34.0 % Notes…
The components of deferred income taxes
at the end of the fiscal yearwere as follows (inthousands of dollars)thousands):
2002 2001 ---- ----Future Income Tax Benefits: Inventory ......................... $ 6,971 $ 3,424 Payroll related accruals .......... 4,890 3,846 Warranty reserves ................. 17,780 18,311 Other accrued liabilities ......... 15,501 10,769 Miscellaneous ..................... (3,749) 2,084 -------- -------- $ 41,383 $ 38,434 ======== ========23NOTES ... - --------------------------------------------------------------------------------
2002 2001 ---- ----Deferred Income Taxes: Difference between book and tax methods applied to maintenance and supply inventories ...................... $ 9,325 $ 10,723 Pension cost ...................... (22,532) (13,187) Accumulated depreciation .......... (56,025) (55,163) Accrued employee benefits ......... 10,570 10,060 Post retirement health care obligation ........... 24,474 24,089 Deferred revenue on sale of plant & equipment ............. 5,992 6,059 Miscellaneous ..................... 791 (932) -------- -------- $(27,405) $(18,351) ======== ========
2004 2003 Deferred Income Tax Asset:
Difference Between Book and Tax Methods Applied to
Inventory
$ 13,443 $ 13,145 Payroll Related Accruals
2,627 2,483 Warranty Reserves
16,768 18,140 Other Accrued Liabilities
16,395 15,950 Miscellaneous
(1,610 ) (1,044 ) $ 47,623 $ 48,674 Deferred Income Tax Liability:
Difference Between Book and Tax Methods Applied to
Pension Cost
$ (31,875 ) $ (28,862 ) Accumulated Depreciation
(59,271 ) (58,806 ) Accrued Employee Benefits
12,333 11,545 Postretirement Health Care Obligation
14,917 18,745 Deferred Revenue on Sale of Plant & Equipment
5,822 5,914 Miscellaneous
(12,380 ) (6,453 ) $ (70,454 ) $ (57,917 ) The Company has not recorded deferred income taxes applicable to undistributed earnings of foreign subsidiaries that are indefinitely reinvested in foreign operations. These undistributed earnings amounted to approximately
$8.0$10.5 million at June30, 2002.27, 2004. If these earnings were remitted to the U.S., they would be subject to U.S. income tax. However, this tax would be substantially less than the U.S. statutory income tax because of available foreign tax credits.(5)
SEGMENT AND GEOGRAPHIC INFORMATION AND SIGNIFICANT CUSTOMERS: In accordance with SFAS No. 131, "Disclosures about Segments of an EnterpriseSegment andRelated Information"Geographic Information andsubsequent to the May 15, 2001 acquisition described in Note 3, theSignificant Customers:The Company has concluded that it operates two reportable business segments that are managed separately based on fundamental differences in their operations. Summarized segment data is as follows (in
thousands of dollars)thousands):
2002 2001 2000 ---- ---- ----NET SALES - Engines .......................... $ 1,366,947 $ 1,289,858 $ 1,591,236 Power Products ................... 216,006 29,587 - Eliminations ..................... (53,581) (9,272) - ----------- ----------- ----------- $ 1,529,372 $ 1,310,173 $ 1,591,236 =========== =========== =========== INCOME FROM OPERATIONS - Engines .......................... $ 117,104 $ 99,156 $ 205,229 Power Products ................... 2,052 1,118 - Eliminations ..................... (798) (1,168) - ----------- ----------- ----------- $ 118,356 $ 99,108 $ 205,229 =========== =========== =========== ASSETS - Engines .......................... $ 1,080,259 $ 1,012,438 $ 930,245 Power Products ................... 279,199 287,058 - Eliminations ..................... (10,425) (3,301) - ----------- ----------- ----------- $ 1,349,033 $ 1,296,195 $ 930,245 =========== =========== =========== CAPITAL EXPENDITURES - Engines .......................... $ 42,086 $ 60,841 $ 71,441 Power Products ................... 1,842 481 - ----------- ----------- ----------- $ 43,928 $ 61,322 $ 71,441 =========== =========== =========== DEPRECIATION & AMORTIZATION - Engines .......................... $ 63,157 $ 58,362 $ 53,277 Power Products ................... 2,811 1,349 - ----------- ----------- ----------- $ 65,968 $ 59,711 $ 53,277 =========== =========== ===========
2004 2003 2002 NET SALES:
Engines
$ 1,617,409 $ 1,428,411 $ 1,366,977 Power Products
489,250 329,488 215,904 Eliminations
(159,295 ) (100,266 ) (53,581 ) $ 1,947,364 $ 1,657,633 $ 1,529,300 GROSS PROFIT ON SALES:
Engines
$ 387,582 $ 291,937 $ 250,150 Power Products
57,846 38,233 20,613 Eliminations
(5,556 ) (2,091 ) (799 ) $ 439,872 $ 328,079 $ 269,964 INCOME FROM OPERATIONS:
Engines
$ 209,337 $ 134,775 $ 114,859 Power Products
30,428 17,238 2,192 Eliminations
(5,556 ) (2,091 ) (799 ) $ 234,209 $ 149,922 $ 116,252 Notes…
2004 2003 2002 ASSETS:
Engines
$ 1,435,016 $ 1,150,607 $ 1,087,943 Power Products
402,618 339,970 279,083 Eliminations
(200,481 ) (15,384 ) (10,425 ) $ 1,637,153 $ 1,475,193 $ 1,356,601 CAPITAL EXPENDITURES:
Engines
$ 47,408 $ 35,903 $ 42,086 Power Products
5,554 4,251 1,842 $ 52,962 $ 40,154 $ 43,928 DEPRECIATION & AMORTIZATION:
Engines
$ 63,744 $ 60,875 $ 63,157 Power Products
3,154 2,651 2,811 $ 66,898 $ 63,526 $ 65,968 Information regarding the
Company'sCompany’s geographic sales by the location in which the sale originated is as follows (inthousands of dollars)thousands):
2002 2001 2000 ---- ---- ----United States ...................... $ 1,437,739 $ 1,226,035 $ 1,502,402 All Other Countries ................ 91,633 84,139 88,834 ----------- ----------- ----------- Total .............................. $ 1,529,372 $ 1,310,179 $ 1,591,236 =========== =========== ===========
2004 2003 2002 United States
$ 1,795,128 $ 1,546,520 $ 1,437,667 All Other Countries
152,236 111,113 91,633 Total
$ 1,947,364 $ 1,657,633 $ 1,529,300 The Company has no material long lived assets in an individual foreign country.
In
thefiscal years2002, 20012004, 2003 and2000,2002, there were sales to three major engine customers that exceeded 40% of our business and in certain years they individually exceeded 10% of total Company net sales. The sales to these customers are summarized below (in thousands of dollars and percent of total Company net sales):
2002 2001 2000 ---- ---- ---- Customer Sales % Sales % Sales % ----- - ----- - ----- -A $229,785 19% $267,516 20% $287,769 18% B 255,119 17% 187,001 14% 229,873 15% C 165,670 11% 150,682 12% 190,659 12% -------- ---- -------- ---- -------- ---- $720,754 47% $605,199 46% $708,301 45% ======== ==== ======== ==== ======== ====24NOTES ... - --------------------------------------------------------------------------------
2004
Net Sales
% 2003
Net Sales
% 2002
Net Sales
% Customer
A
$ 318,705 16 % $ 260,253 16 % $ 255,155 17 % B
334,748 17 % 253,066 15 % 299,864 19 % C
169,002 9 % 168,928 10 % 165,097 11 % $ 822,455 42 % $ 682,247 41 % $ 720,116 47 % (6)
INDEBTEDNESS: AsLeases:The Company leases certain facilities, vehicles, and equipment under non-cancelable operating leases which expire at various dates. Terms of
November 15, 2001,the leases, including purchase options, renewals, and maintenance costs, vary by lease. Rental expense for fiscal 2004, 2003, and 2002 was $10.2 million, $8.1 million and $8.7 million, respectively.Future minimum lease commitments for all non-cancelable operating leases as of June 27, 2004 are as follows (in thousands):
Fiscal Year
2005
$ 7,552 2006
4,570 2007
2,275 2008
1,718 2009
1,076 Thereafter
1,265 $ 18,456 Notes…
(7) Indebtedness:
On May 28, 2004, the Company replaced its
$250unsecured three-year $300 million revolving credit facility that would have expired inApril 2002,September 2004 witha three-year $300an unsecured five-year $275 million revolving credit facility(the credit facility)that expires inSeptember 2004. The Company also has access to domestic lines of credit (domestic lines) totaling $15.0 million that remain in effect until canceled by either party. The domestic lines provide amounts for short-term use at the then prevailing rate. There are no significant compensating balance requirements for any of these domestic lines.May 2009. There were no borrowings using thesedomestic lines or thecreditfacilityfacilities as of June30, 2002 and July 1, 2001.27, 2004 or June 29, 2003.Borrowings under the credit facility by the Company bear interest at a rate per annum equal to, at its option, either:
(1) a 1, 2, 3 or 6 month LIBOR rate plus a margin varying from 0.50% to
1.75%2.00%, depending upon the rating of theCompany'sCompany’s long-term debt by Standard &Poor'sPoor’s Rating group, a division of McGraw-Hill Companies (S&P) andMoody'sMoody’s Investors Service, Inc.(Moody's)(Moody’s); or(2) the higher of (a) the federal funds rate plus 0.50% or (b) the
bank'sbank’s primerate plus a margin of up to 0.25%, also depending on the Company's long-term credit ratings.rate.In addition, the Company is subject to a 0.10% to
0.35%0.375% commitment fee and a 0.50% to1.75%2.00% letter of credit fee, depending on theCompany'sCompany’s long-term credit ratings.The following data relates to domestic notes payable (in
thousands of dollars)thousands):
2002 2001 ---- ----Balance at Fiscal Year End .... $ 2,625 $ 3,300 Weighted Average Interest Rate at Fiscal Year End .... 4.00% 5.18%
2004 2003 Balance at Fiscal Year-End
$ 1,220 $ 2,075 Weighted Average Interest Rate at Fiscal Year-End
2.98 % 2.86 % The lines of credit available to the Company in foreign countries are in connection with short-term borrowings and bank overdrafts used in the normal course of business. These amounts total
$26.2$31.1 million, expire at various times through April20032005 and are renewable.There were borrowingsBorrowings of$15.3$1.2 million at June30, 200227, 2004 using these lines of creditandare included in foreign loans. None of these arrangements had material commitment fees or compensating balance requirements.The following information relates to foreign loans (in
thousands of dollars)thousands):
2002 2001 ---- ----Balance at Fiscal Year End .... $ 15,270 $ 16,291 Weighted Average Interest Rate at Fiscal Year End .... 5.41% 5.80%
2004 2003 Balance at Fiscal Year-End
$ 1,907 $ 865 Weighted Average Interest Rate at Fiscal Year-End
7.64 % 5.73 % The Long-Term Debt caption consists of the following (in
thousandsthousands):
2004 2003 5.00% Convertible Senior Notes Due 2006
$ — $ 140,000 7.25% Senior Notes Due 2007, Net of Unamortized Discount of $597 in 2004 and $783 in 2003
89,403 89,217 8.875% Senior Notes Due 2011, Net of Unamortized Discount of $3,841 in 2004 and $4,413 in 2003
271,159 270,587 Fair Value of Interest Rate Swaps
— 3,593 Total Long-Term Debt
$ 360,562 $ 503,397 In May 2004, the Company initiated and completed the redemption of
dollars):its 5.00% Convertible Senior Notes due 2006 (“Notes”). With the exception of $22,000 principal amount of Notes which were redeemed for cash, all holders exercised their conversion rights prior to the redemption dates and were issued 2,825,363 shares of Briggs & Stratton Corporation common stock from shares held in treasury.
2002 2001 ---- ----5.00% Convertible Senior Notes Due 2006 ............................ $140,000 $140,000 7.25% Senior Notes Due 2007, Net of Unamortized Discount of $969 in 2002 and $1,282 in 2001 ...................... 89,031 98,718 8.875% Senior Notes Due 2011, Net of Unamortized Discount of $5,009 in 2002 and $5,584 in 2001 ...................... 269,991 269,416 -------- -------- Total Long-Term Debt ................ $499,022 $508,134 ======== ========In April 2004, the Company terminated all outstanding interest rate swaps relating to its 8.875% Senior Notes due 2011. Prior to termination, the swaps converted $50 million of notional amounts from a fixed rate to a floating rate (LIBOR-set-in-arrears), and had a maturity of 2011. The swaps were terminated at a gain of $0.5 million.
In May 2001, the Company issued $275.0 million of 8.875% Senior Notes due March 15,
2011 and $140.0 million of 5.00% Convertible Senior Notes due May 15, 2006. The convertible senior notes are convertible at the option of the holders into the Company's common stock at the conversion rate of 20.1846 shares per each $1,000 of convertible notes. Interest is paid semi-annually on both series of notes.2011. No principal payments are due before the maturitydates. The net proceeds from the sale of the 8.875% senior notes and 5.00% convertible senior notes were used to fund the Company's acquisition of GPP, including the replacement of GPP's outstanding debt and to repay a portion of the Company's unrated commercial paper and short-term borrowings under its credit facilities.date.Notes…
The 7.25% senior notes are due September 15, 2007. In accordance with the agreement, no principal payments are due before the maturity
date,date; however, the Company repurchased $10 million of the bonds in the fourth quarter of fiscal year 2002 after receiving unsolicited offers from bondholders.The separate indentures
providingprovided for the 7.25% senior notes, the 8.875% senior notesthe 5.00% convertible senior notesand theCompany'sCompany’s credit25NOTES... - --------------------------------------------------------------------------------facility (collectively, the Domestic Indebtedness) each include a number of financial and operating restrictions. These covenants include restrictions on theCompany'sCompany’s ability to: pay dividends; incur indebtedness; create liens; enter into sale and leaseback transactions; consolidate, merge, sell or lease all or substantially all of its assets; and dispose of assets or the proceeds of sales of its assets. The credit facility contains financial covenants that require the Company to maintain a minimum interest coverage ratio and net worth (for the first quarter of fiscal20032005 the Company is required to maintain a minimum net worth of$376.6$575.0 million),and impose a maximum leverageratio and total funded debt to EBITDA ratio and impose capital expenditure limits. In addition, the credit facility contains provisions that only apply if the Company's credit rating from S&P is BB or below or from Moody's is Ba2 or below.ratio. As of June30, 2002,27, 2004, the Company was in compliance with these covenants.Additionally, under the terms of the indentures governing the Domestic Indebtedness,
GPPBSPPG became a joint and several guarantor of amounts outstanding under the Domestic Indebtedness. Refer to Note1516 of the Notes totheConsolidated Financial Statements for subsidiary guarantor financial information.(7) OTHER INCOME:(8) Other Income:
The components of other income (expense) are as follows (in
thousands of dollars)thousands):
2002 2001 2000 ------- ------- -------Interest income ........................ $ 2,189 $ 2,069 $ 1,589 Loss on the disposition of plant and equipment .................. (3,192) (1,493) (2,378) Income from investments ................ 70,071 5,485 14,364 Transaction gain (loss) ................ 3,757 (4,973) 206 Derivatives gain (loss) ................ (3,829) 1,438 - Deferred financing costs ............... (1,420) (133) - Amortization of intangibles ............ (56) (1,052) - Other items ............................ 2,065 2,091 2,335 ------- ------- ------- Total .................................. $ 6,585 $ 3,432 $16,116 ======= ======= =======(8) COMMITMENTS AND CONTINGENCIES:
2004 2003 2002 Interest Income
$ 2,970 $ 2,500 $ 2,189 Equity in Earnings of Unconsolidated Affiliates
7,876 5,224 6,181 Deferred Financing Costs
(3,778 ) (1,519 ) (1,420 ) Amortization of Intangibles
(56 ) (56 ) (56 ) Gain on Investment in China
386 2,972 — Other Items
1,062 (76 ) 1,797 Total
$ 8,460 $ 9,045 $ 8,691 (9) Commitments and Contingencies:
Product and general liability claims arise against the Company from time to time in the ordinary course of business. The Company is generally self-insured for claims up to
$1$2.0 million per claim. Accordingly, a reserve is maintained for the estimated costs of such claims. On June30, 200227, 2004 andJuly 1, 2001June 29, 2003 the reserve for product and general liability claims (which includes asbestos-related liabilities) was$2.8$6.3 million and$3.6$4.7 million, respectively. Because there is inherent uncertainty as to the eventual resolution of unsettled claims, no reasonable range of possible losses can be determined. Management does not anticipate that these claims, excluding the impact of insurance proceeds and reserves, will have a material adverse effect on the financial condition or results of operations of the Company.In October 1998, the Company joined seventeen other companies in guaranteeing a $17.9 million letter of credit issued as a guarantee of certain City of Milwaukee Revenue Bonds used to develop a residential rental property. The Revenue Bonds were issued on behalf of a not-for-profit organization established to manage the project and rental property post construction. The revenues from the rental property are used to fund operating expenses and all debt service requirements. The Company’s share of the guarantee and the maximum exposure to the Company under the agreement is $1.8 million. The letter of credit and underlying guarantee expires August 15, 2008. Management believes the likelihood is remote that material payments will be required under this guarantee. Accordingly, no liability has been reflected in the accompanying Consolidated Balance Sheets related to this item.
The Company has no material commitments for materials or capital expenditures as of June
30, 2002. (9) STOCK OPTIONS:27, 2004.(10) Stock Incentives:
The Company has a Stock Incentive Plan under which 5,361,935 shares of common stock have been reserved for issuance. In accordance with the plan, the Company can issue eligible employees stock options,
Notes…
stock appreciation rights, restricted stock, deferred stock, stock purchase rights and cash bonus awards. The plan also allows the Company to issue directors non-qualified stock options and directors’ fees in stock.
The Company
accounts forhas issued stock options to certain employees and directors in accordance with the plan, which are accounted for under Accounting Principles Board Opinion No. 25, and no compensation cost has been recognized. Had compensation cost forthese plansthis plan been determined consistent with SFAS No. 123,"Accounting“Accounting for Stock-Based Compensation,"” theCompany'sCompany’s net income and earnings per share would have been reduced to the following pro forma amounts:
2002 2001 2000 ---- ---- ----Net Income (in thousands): As Reported ................... $53,120 $48,013 $136,473 Pro Forma ..................... $49,494 $44,814 $134,600 Basic Earnings Per Share: As Reported ................... $2.46 $2.22 $5.99 Pro Forma ..................... $2.29 $2.07 $5.91 Diluted Earnings Per Share: As Reported ................... $2.36 $2.21 $5.97 Pro Forma ..................... $2.21 $2.04 $5.89Information
2004 2003 2002 Net lncome (in thousands):
As Reported
$ 136,114 $ 80,638 $ 53,120 Compensation Cost
(3,528 ) (3,056 ) (3,626 ) Pro Forma
$ 132,586 $ 77,582 $ 49,494 Basic Earnings Per Share:
As Reported
$ 6.01 $ 3.73 $ 2.46 Pro Forma
$ 5.86 $ 3.59 $ 2.29 Diluted Earnings Per Share:
As Reported
$ 5.53 $ 3.49 $ 2.36 Pro Forma
$ 5.40 $ 3.38 $ 2.21 The exercise prices of each stock option issued is in excess of the market value of the stock on the
options outstanding is as follows:
Wtd. Avg. Shares Ex. Price ------ ---------Balance, June 27, 1999......................... 1,042,011 $ 49.28 Granted during the year........................ 471,020 74.53 Exercised during the year...................... (151,033) 38.49 Expired during the year........................ (58,970) 67.55 --------- Balance, July 2, 2000.......................... 1,303,028 $ 58.83 Granted during the year........................ 600,000 $ 46.22 Exercised during the year...................... (13,449) 20.45 Expired during the year........................ (180,738) 49.08 --------- Balance, July 1, 2001.......................... 1,708,841 $ 55.73 Granted during the year........................ 371,490 $ 49.19 Exercised during the year...................... (39,597) 27.64 Expired during the year........................ (199,094) 54.59 --------- Balance, June 30, 2002......................... 1,841,640 $ 55.14 =========26NOTES... - --------------------------------------------------------------------------------date of grant. The fair value of each option is estimated using the Black-Scholes option pricing model. The grant-date fair market value of the options and assumptions used to determine such value are:
Grant Summary - -------------------------------------------------------------------------------- Fiscal Grant Exercise Date Options Expiration Year Date Price Exercisable Outstanding Date - ------ ---- -------- ----------- ----------- ----1998 8-5-97 65.690 8-5-00 223,440 8-5-02 1999 8-5-98 44.980 8-5-01 307,070 8-5-03 2000 8-4-99 74.530 8-4-02 403,670 8-4-04 2001 8-3-00 46.220 8-3-03 559,910 8-3-07 2002 8-7-01 49.190 8-7-04 347,550 8-7-08
Options granted during 2002 2001 2000 ---- ---- ----Grant date fair value ........ $12.53 $11.47 $13.07 Assumptions: Risk-free interest rate .... 5.1% 6.0% 6.0% Expected volatility ........ 40.3% 37.6% 30.1% Expected dividend yield .... 3.1% 2.6% 2.5% Expected term (in years) ... 7.0 7.0 5.0(10) SHAREHOLDER RIGHTS PLAN:
Options Granted During
2004 2003 2002 Grant Date Fair Value
$ 19.95 $ 10.61 $ 12.53 Assumptions:
Risk-free Interest Rate
4.6 % 4.3 % 5.1 % Expected Volatility
33.1 % 38.4 % 40.3 % Expected Dividend Yield
2.3 % 3.3 % 3.1 % Expected Term (In Years)
10.0 7.0 7.0 Information on the options outstanding is as follows:
Shares Wtd. Avg.
Ex. PriceBalance, July 1, 2001
1,753,841 $ 55.78 Granted During the Year
371,490 $ 49.19 Exercised During the Year
(39,597 ) 27.64 Expired During the Year
(199,094 ) 54.59 Balance, June 30, 2002
1,886,640 $ 55.20 Granted During the Year
205,980 $ 46.69 Exercised During the Year
(122,060 ) 44.98 Expired During the Year
(294,770 ) 63.71 Balance, June 29, 2003
1,675,790 $ 53.40 Granted During the Year
438,050 $ 60.88 Exercised During the Year
(861,695 ) 52.59 Expired During the Year
(3,000 ) 74.53 Balance, June 27, 2004
1,249,145 $ 56.53 Notes…
Grant Summary
Fiscal Year
Grant
DateDate
ExercisableExpiration
DateExercise
PriceOptions
Outstanding2000
8-4-99 8-4-02 8-31-04 $ 74.53 214,260 2001
8-3-00 8-3-03 8-3-07 46.22 221,805 2002
8-7-01 8-7-04 8-7-08 49.19 224,820 2003
8-13-02 8-13-05 8-13-09 46.69 174,910 2004
8-15-03 8-15-06 8-15-13 60.88 413,350 Under the Stock Incentive Plan, the Company has issued restricted stock to certain employees. During fiscal years 2004 and 2003, the Company issued 24,500 and 7,000 shares, respectively. No restricted shares were issued during fiscal year 2002. The restricted stock issued vests on the fifth anniversary date of issue provided that the recipient is still employed by the Company. The aggregate market value on the date of issue of $1.5 million in fiscal 2004 and $0.2 million in fiscal 2003 has been recorded as unearned compensation, a separate component of the Shareholders’ Investment section of the Consolidated Balance Sheets, and is being amortized over the five-year vesting period.
Under the Stock Incentive Plan the Company may also issue stock to its directors in lieu of directors fees. The Company has issued 2,625 shares, 1,317 shares and 800 shares in fiscal 2004, 2003 and 2002, respectively under this provision of the plan.
(11) Shareholder Rights Plan:
On August 6, 1996, the Board of Directors declared a dividend distribution of one common stock purchase right (a right) for each share of the
Company'sCompany’s common stock outstanding on August 19, 1996. Each right would entitle shareowners to buy one-half of one share of theCompany'sCompany’s common stock at an exercise price of $160.00 per full common share, subject to adjustment. The rights are not currently exercisable, but would become exercisable if events occurred relating to a person or group acquiring or attempting to acquire 15 percent or more of the outstanding shares of common stock. The rights expire on August 19, 2006, unless redeemed or exchanged by the Company earlier.(11) FOREIGN EXCHANGE RISK MANAGEMENT:(12) Foreign Exchange Risk Management:
The Company enters into forward exchange contracts to hedge purchases and sales that are denominated in foreign currencies. The terms of these currency derivatives
generallydo not exceed twelve months, and the purpose is to protect the Company from the risk that the eventual dollars being transferred will be adversely affected by changes in exchange rates.The Company has forward foreign currency exchange contracts to purchase Japanese yen. These contracts are used to hedge the commitments to purchase engines from the
Company'sCompany’s Japanese joint venture. The Company also has forward contracts to sell foreign currency. These contracts are used to hedge foreign currency collections on sales of inventory. TheCompany'sCompany’s foreign currency forward contracts are carried at fair value based on current exchange rates.The Company has the following forward currency contracts outstanding at the end of fiscal
2002:2004:
In Millions Hedge --------------------------------------------------- - --------------------------- Notional Contract Fair Market (Gain)/Loss Conversion Latest Currency Contract Value Value Value at Fair Value Currency Expiration Date - -------- -------- -------- -------- ----------- ------------- ---------- ---------------Japanese Yen Buy 239.5 1.8 2.0 (.2) U.S. September 2002 Euro Sell 100.9 93.6 99.2 5.6 U.S. April 2003 Australian Dollar Sell 2.0 1.1 1.1 - U.S. December 2002 Canadian Dollar Sell .9 .6 .6 - U.S. November 2002
Hedge
In Millions Conversion
CurrencyLatest
Expiration DateNotional
ValueContract
ValueFair Market
Value(Gain)/Loss
at Fair ValueCurrency
Contract Japanese Yen
Buy 1,680.0 15.5 15.7 (0.2 ) U.S. March 2005 Euro
Sell 87.0 103.0 105.8 2.8 U.S. April 2005 Australian Dollar
Sell 0.4 0.2 0.3 0.1 U.S. September 2004 Notes…
The
Company's foreign subsidiaries haveCompany had the following forward currency contracts outstanding at the end of fiscal2002:2003:
In Millions Hedge --------------------------------------------------- - --------------------------- Notional Contract Fair Market (Gain)/Loss Conversion Latest Currency Contract Value Value Value at Fair Value Currency Expiration Date - -------- -------- -------- -------- ----------- ------------- ---------- ---------------Japanese Yen Sell 26.9 .4 .4 - Australian August 2002 U.S. Dollars Buy .4 .8 .8 - Australian August 2002 British Pounds Buy .6 1.7 1.7 - Australian June 2003
Hedge
In Millions Conversion
CurrencyLatest
Expiration DateNotional
ValueContract
ValueFair Market
Value(Gain)/Loss
at Fair ValueCurrency
Contract Japanese Yen
Buy 410.0 3.5 3.4 (0.1 ) U.S. October 2003 Euro
Sell 46.0 51.0 52.4 1.4 U.S. February 2004 Australian Dollar
Sell 1.5 0.9 1.0 0.1 U.S. December 2003 Canadian Dollar
Sell 1.6 1.1 1.2 0.1 U.S. November 2003 The Company
continuously evaluatesreclassified approximately $1.1 million of unrealized loss into earnings during fiscal 2004 as forecasted transactions did not materialize in accordance with theeffectiveness of itshedgingprogram by evaluating its foreign exchange contracts compared to the anticipated underlying transactions. 27NOTES... - -------------------------------------------------------------------------------- (12) EMPLOYEE BENEFIT COSTS:plan.Notes…
(13) Employee Benefit Costs:
Retirement Plan and Postretirement Benefits
The Company has noncontributory, defined benefit retirement plans and postretirement benefit plans covering
most Wisconsincertain employees. The Company uses a June 30 measurement date for all of its plans. The following provides a reconciliation of obligations, plan assets and funded status of the plans for the two years indicated,(dollars in(in thousands):
Pension Benefits Other Postretirement Benefits ------------------------ ----------------------------- 2002 2001 2002 2001 --------- --------- --------- ---------Actuarial Assumptions: Discounted Rate Used to Determine Present Value of Projected Benefit Obligation ........... 7.25% 7.5% 7.25% 7.5% Expected Rate of Future Compensation Level increases ................................. 4.0-5.0% 4.0-5.0% n/a n/a Expected Long-Term Rate of Return on Plan Assets ..................................... 9.0% 9.0% n/a n/a Change in Benefit Obligations: Actuarial Present Value of Benefit Obligations at Beginning of Year ............................ $ 703,275 $ 666,392 $ 108,557 $ 99,793 Service Cost ...................................... 10,014 9,482 1,341 1,215 Interest Cost ..................................... 51,203 48,079 8,028 7,091 Plan Amendments ................................... - 29,190 - - Acquisition ....................................... - 2,671 - - Special Termination Benefits ...................... 4,907 - 2,183 - Actuarial (Gain) Loss ............................. 30,692 (10,478) 12,337 13,035 Benefits Paid ..................................... (52,470) (42,061) (8,981) (12,577) --------- --------- --------- --------- Actuarial Present Value of Benefit Obligation at End of Year .................................. $ 747,621 $ 703,275 $ 123,465 $ 108,557 --------- --------- --------- --------- Change in Plan Assets: Plan Assets at Fair Value at Beginning of Year .... $ 940,582 $ 951,757 $ - $ - Actual Return on Plan Assets ...................... (32,866) 29,084 - - Acquisition ....................................... - 1,018 - - Employer Contributions ............................ 1,257 784 8,981 12,577 Benefits Paid ..................................... (52,470) (42,061) (8,981) (12,577) --------- --------- --------- --------- Plan Assets at Fair Value at End of Year .......... $ 856,503 $ 940,582 $ - $ - --------- --------- --------- --------- Plan Assets in Excess of (Less Than) Projected Benefit Obligation .............................. $ 108,882 $ 237,307 $(123,465) $(108,557) Remaining Unrecognized Net Obligation (Asset) ..... -- (4,517) 275 321 Unrecognized Net Loss (Gain) ...................... (95,547) (244,579) 40,177 29,673 Unrecognized Prior Service Cost ................... 29,942 32,739 71 103 --------- --------- --------- --------- Net Amount Recognized at End of Year .............. $ 43,277 $ 20,950 $ (82,942) $ (78,460) ========= ========= ========= ========= Amounts Recognized on the Balance Sheets: Prepaid Pension ................................... $ 60,343 $ 36,275 $ - $ - Accrued Pension Cost .............................. (15,750) (14,494) - - Accrued Wages and Salaries ........................ (1,316) (831) - - Accrued Post Retirement Health Care Obligation .... - - (62,753) (61,767) Other Accruals .................................... - - (8,000) (4,800) Accrued Employee Benefits ......................... - - (12,189) (11,893) --------- --------- --------- --------- Net Amount Recognized at End of Year .............. $ 43,277 $ 20,950 $ (82,942) $ (78,460) ========= ========= ========= =========28NOTES... - --------------------------------------------------------------------------------
Pension Benefits Other Postretirement Benefits 2004 2003 2004 2003 Actuarial Assumptions:
Discounted Rate Used to Determine Present Value of Projected Benefit Obligation
6.25 % 6.00 % 6.25 % 6.00 % Expected Rate of Future Compensation Level Increases
3.0-5.0 % 3.0-5.0 % n/a n/a Expected Long-Term Rate of Return on Plan Assets
8.75 % 8.75 % n/a n/a Change in Benefit Obligations:
Actuarial Present Value of Benefit Obligations at Beginning of Year
$ 879,588 $ 747,621 $ 190,410 $ 123,465 Service Cost
13,188 11,263 1,673 1,594 Interest Cost
51,089 52,276 10,766 8,258 Plan Amendments
1,048 1,234 — — Plan Participant Contributions
— — 4,018 3,464 Actuarial Loss
21,171 127,441 65,629 74,534 Benefits Paid
(63,759 ) (60,247 ) (29,039 ) (20,905 ) Actuarial Present Value of Benefit Obligation at End of Year
$ 902,325 $ 879,588 $ 243,457 $ 190,410 Change in Plan Assets:
Plan Assets at Fair Value at Beginning of Year
$ 851,918 $ 856,503 $ — $ — Actual Return on Plan Assets
126,575 54,350 — — Plan Participant Contributions
135 — 4,018 3,464 Employer Contributions
1,411 1,312 25,021 17,441 Benefits Paid
(63,759 ) (60,247 ) (29,039 ) (20,905 ) Plan Assets at Fair Value at End of Year
$ 916,280 $ 851,918 $ — $ — Funded Status:
Plan Assets in Excess (Less Than) of Projected Benefit Obligation
$ 13,955 $ (27,670 ) $ (243,457 ) $ (190,410 ) Remaining Unrecognized Net Obligation
74 82 182 228 Unrecognized Net Loss
22,682 56,237 169,559 112,284 Minimum Pension Liability
(3,063 ) (4,522 ) — — Unrecognized Prior Service Cost
26,179 28,210 9 41 Net Amount Recognized at End of Year
$ 59,827 $ 52,337 $ (73,707 ) $ (77,857 ) Amounts Recognized on the Balance Sheets:
Prepaid Pension
$ 81,730 $ 74,005 $ — $ — Accrued Pension Cost
(20,603 ) (20,368 ) — — Accrued Wages and Salaries
(1,300 ) (1,300 ) — — Accrued Postretirement Health Care Obligation
— — (38,248 ) (48,065 ) Accrued Liabilities
— — (22,000 ) (17,000 ) Accrued Employee Benefits
— — (13,459 ) (12,792 ) Net Amount Recognized at End of Year
$ 59,827 $ 52,337 $ (73,707 ) $ (77,857 ) Notes…
The accumulated benefit obligation for all defined benefit pension plans was $855,859 and $831,919 at June 30, 2004 and 2003, respectively.
The following table summarizes the
plans'plans’ income and expense for the three years indicated(dollars(in thousands):
Pension Benefits Other Postretirement Benefits 2004 2003 2002 2004 2003 2002 Components of Net Periodic (Income) Expense:
Service Cost-Benefits Earned During the Year
$ 13,188 $ 11,263 $ 10,014 $ 1,673 $ 1,594 $ 1,341 Interest Cost on Projected Benefit Obligation
51,089 52,276 51,203 10,766 8,258 8,028 Expected Return on Plan Assets
(72,458 ) (76,403 ) (77,192 ) — — — Amortization of:
Transition Obligation (Asset)
8 8 (4,517 ) 46 46 46 Prior Service Cost
3,080 2,965 2,797 31 31 31 Actuarial Loss (Gain)
607 (2,398 ) (8,328 ) 8,354 2,428 1,834 Net Periodic (Income) Expense
$ (4,486 ) $ (12,289 ) $ (26,023 ) $ 20,870 $ 12,357 $ 11,280 Significant assumptions used in
thousands):determining net periodic benefit cost for the fiscal years ended are as follows:
Pension Benefits Other Postretirement Benefits ------------------------------------ ---------------------------------- 2002 2001 2000 2002 2001 2000 -------- -------- -------- -------- -------- --------Components of Net Periodic Benefit Cost: Service Cost-Benefits Earned During the Year .... $ 10,014 $ 9,482 $ 10,622 $ 1,341 $ 1,215 $ 1,307 Interest Cost on Projected Benefit Obligation ... 51,203 48,079 47,475 8,028 7,091 7,343 Expected Return on Plan Assets .................. (77,192) (73,053) (63,845) - - - Amortization of: Transition Obligation (Asset) ................ (4,517) (5,306) (5,306) 46 47 46 Prior Service Cost ........................... 2,797 242 186 31 31 31 Actuarial (Gain) Loss ........................ (8,328) (7,822) 359 1,834 583 1,111 -------- -------- -------- -------- -------- -------- Net Periodic Benefit Expense (Income) ........... $(26,023) $(28,378) $(10,509) $ 11,280 $ 8,967 $ 9,838 ======== ======== ======== ======== ======== ========
Pension Benefits Other Postretirement Benefits 2004 2003 2002 2004 2003 2002 Discount Rate
6.0 % 7.25 % 7.5 % 6.0 % 7.25 % 7.5 % Expected Return on Plan Assets
8.75 % 9.0 % 9.0 % n/a n/a n/a Compensation Increase Rate
3.0-5.0 % 4.0-5.0 % 4.0-5.0 % n/a n/a n/a In the second quarter of fiscal 2002, the Company offered and finalized an early retirement incentive program. As a result, the Company recorded $4.9 million of expense offsetting pension income of $26 million and $2.2 million was added to postretirement health care expense. The impact for the full fiscal year of 2002 reduced net income on an after-tax basis by $2.5 million, after consideration of salary and related expenditures savings.
In July 2001, the Company extended its collective bargaining agreement with one of its unions. As part of this contract extension, the Company agreed to pay certain amounts to employees who were hired prior to January 1, 1980 upon their retirement.The
impact of this plan amendment is included in the above tables. As described in Note 14, the Company contributed its two ductile iron foundries to Metal Technologies Holding Company, Inc. (MTHC). In connection with the contribution, MTHC agreed to assume pension and postretirement benefit obligations related to employees working at the foundries at the time of the transaction. The Company transferred to MTHC pension assets amounting to $11.3 million in fiscal 2001. The assumption of obligations by MTHC and transfer of pension assets did not result in a gain or loss to the Company. The Company'sCompany’s supplemental pension plan has benefit obligations in excess of plan assets. The benefit obligation, accumulated benefit obligation and fair value of plan assets were$25.2$28.4 million,$17.9$22.0 million and$.1$0.1 million respectively for fiscal year20022004 and$19.0$26.5 million,$14.9$21.7 million and$0$0.1 million respectively for fiscal year2001.2003.An additional pension obligation is required when the accumulated benefit obligation exceeds the sum of the fair value of plan assets and the accrued pension expense. At June 27, 2004, the Company’s additional pension obligation was $3.1 million, of which $1.3 million was included as a reduction in accumulated other comprehensive income, net of tax benefit of $0.9 million, and $0.9 million was included as an intangible asset as part of the other assets in the consolidated balance sheet. At June 29, 2003, the Company’s additional pension obligation was $4.5 million, of which $2.6 million was included as an increase in accumulated other comprehensive loss, net of tax benefit of $1.6 million, and $0.3 million was included as an intangible asset.
The postretirement benefit plans are essentially unfunded.
For measurement purposes a
9%10% annual rate of increase in the per capita cost of covered health care claims was assumed for the fiscal year20032004 decreasing gradually to 5% for the fiscal year2008.2010. The health care cost trend rate assumption has a significant effect on the amounts reported. An increase of one percentage point, would increase the accumulated postretirement benefit by$8.1$16.1 million and would increase the service and interest cost by$.8$0.9 million for the year. A corresponding decrease of one percentage point, would decrease the accumulated postretirement benefit by$7.5$15.0 million and decrease the service and interest cost by$.7$0.9 million for the fiscal year.Notes…
Plan Assets
A Board of Directors appointed Investment Committee (“Committee”) manages the investment of the pension plan assets. The Committee has established and operates under an Investment Policy. It determines the asset allocation and target ranges based upon periodic asset/liability studies and capital market projections. The Committee retains external investment managers to invest the assets. The Investment Policy prohibits certain investment transactions, such as letter stock, commodity contracts, margin transactions and short selling, unless the Committee gives prior approval. Briggs & Stratton’s pension plans weighted-average asset allocations and target allocations at June 30, 2004, and 2003, by asset category are as follows:
Asset Category
Target % Plan Assets at Year-end 2004 2003 Domestic bonds
24%-34% 26 % 30 % High yield
3%-10% 7 % 7 % Domestic equities
36%-56% 48 % 45 % International equities
5%-15% 10 % 9 % Alternatives
2%-10% 5 % 5 % Real estate
4%-8% 4 % 4 % 100 % 100 % The plan’s investment strategy is based on an expectation that, over time, equity securities will provide higher total returns than debt securities. The plan primarily minimizes the risk of large losses through diversification of investments by asset class, by investing in different types of styles within the classes and by using a number of different managers. The Committee monitors the asset allocation and investment performance monthly, with a more comprehensive quarterly review with its consultant.
The plan’s expected return on assets is based on management’s and the Committee’s expectations of long-term average rates of return to be achieved by the plan’s investments. These expectations are based on the plan’s historical returns and expected returns for the asset classes in which the plan is invested.
Contributions
The Company does not expect to make any contributions to the pension plans in fiscal 2005.
Estimated Future Benefit Payments
Year Ending
Pension Benefits Other Postretirement Benefits Qualified Non-Qualified Retiree Medical Retiree Life LTD 2005
$ 60,004,000 $ 1,433,000 $ 25,390,000 $ 1,271,000 $ 208,000 2006
58,148,000 1,451,000 27,507,000 1,291,000 149,000 2007
58,634,000 1,461,000 28,889,000 1,311,000 98,000 2008
58,550,000 1,461,000 29,121,000 1,330,000 100,000 2009
58,576,000 1,461,000 28,817,000 1,348,000 102,000 2010-2014
283,856,000 7,302,000 129,336,000 6,985,000 368,000 Defined Contribution Plans
The Company has a defined contribution retirement plan that includes most U.S. non-Wisconsin employees. Under the plan, the Company makes an annual contribution on behalf of covered employees equal to 2% of each
participant'sparticipant’s gross income, as defined. Forthefiscalyears2002,2001 and 2000,the net expense related to these plans was $1.6million, $.2 millionmillion. Effective July 1, 2002, this plan was frozen, and$2.1 million, respectively. Wisconsin employeesno future employer contributions will be made.Employees of the Company may participate in a salary reduction deferred compensation retirement plan. A maximum of 1-1/2% or 3% of each
participant'sparticipant’s salary, depending upon theparticipant'sparticipant’s group, is matched by the Company. For certain employees, this Company matching contribution is discretionary. The Company contributions totaled $4.6 million in 2004, $4.3 million in 2003 and $4.1 million in2002, $4.7 million in 2001 and $4.6 million in 2000. 29NOTES... - --------------------------------------------------------------------------------2002.Notes…
Postemployment Benefits
The Company accrues the expected cost of postemployment benefits over the years that the employees render service. These benefits are substantially smaller amounts because they apply only to employees who permanently terminate employment prior to retirement. The items include disability payments, life insurance and medical benefits. These amounts are also discounted using an interest rate of
7.25%6.25% and7.5%6.00% for fiscal year20022004 and2001,2003, respectively. Amounts are included in Accrued Employee Benefits in thebalance sheet. (13) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:Consolidated Balance Sheets.(14) Disclosures About Fair Value of Financial Instruments:
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:
Cash and Cash Equivalents, Receivables, Accounts Payable, Domestic Notes Payable, Foreign Loans, Accrued Liabilities and
Accrued Liabilities:Income Taxes Payable: The carrying amounts approximate fair market value because of the short maturity of these instruments.Long-Term Debt: The fair market value of the
Company'sCompany’s long-term debt is estimated based on market quotations atyear end.year-end.The estimated fair market values of the
Company's financial instruments areCompany’s Long-Term Debt is (inthousands of dollars)thousands):
2002 ------------------------------- CARRYING FAIR AMOUNT VALUE ------ -----Cash
2004 2003 Carrying
AmountFair Value Carrying
AmountFair Value Long-term Debt -
5.00% Convertible Notes Due 2006
$ — $ — $ 140,000 $ 168,725 7.25% Notes Due 2007
$ 89,403 $ 98,683 $ 89,217 $ 91,873 8.875% Notes Due 2011
$ 271,159 $ 328,502 $ 270,587 $ 324,237 (15) Subsequent Event
On July 7, 2004 Briggs & Stratton Corporation and
Cash Equivalents .......... $ 215,945 $ 215,945 Receivables ........................ $ 201,910 $ 201,910 Accounts payable ................... $ 103,648 $ 103,648 Domestic notes payable ............. $ 2,625 $ 2,625 Foreign loans ...................... $ 15,270 $ 15,270 Accrued liabilities ................ $ 131,582 $ 131,582 Long-term debt - 5.00% Convertible Notes due 2006 ....................... $ 140,000 $ 150,865 7.25% Notes due 2007 ............. $ 89,031 $ 88,712 8.875% Notes due 2011 ............ $ 269,991 $ 288,562
2001 ------------------------------- CARRYING FAIR AMOUNT VALUE ------ -----Cash and cash equivalents .......... $ 88,743 $ 88,743 Receivables ........................ $ 145,138 $ 145,138 Accounts payable ................... $ 102,559 $ 102,559 Domestic notes payable ............. $ 3,300 $ 3,300 Foreign loans ...................... $ 16,291 $ 16,291 Accrued liabilities ................ $ 115,725 $ 115,725 Long-term debt - 5.00% Convertible Notes due 2006 ....................... $ 140,000 $ 150,066 7.25% Notes due 2007 ............. $ 98,718 $ 96,237 8.875% Notes due 2011 ............ $ 269,416 $ 277,608(14) DISPOSITION OF BUSINESS: At the end of August 1999, the Company contributeditstwo ductile iron foundries to MTHC in exchangesubsidiary, Briggs & Stratton Power Products Group, LLC acquired Simplicity Manufacturing, Inc. for$23.6$227 million in cash plus certain transaction related expenses. Simplicity designs, manufactures and$45.0 million aggregate par value convertible preferred stock. Themarkets a wide variety of premium yard and garden tractors, lawn tractors, riding mowers, snow throwers, attachments, and other lawn and garden products like rototillers and chipper shredders. This acquisition will be accounted for using the purchase accounting provisions ofthe preferred stock includeSFAS No. 141 “Business Combinations”. While we have not completed our preliminary purchase price allocation, we have engaged a15% cumulative dividend and conversion rights into a minimum of 31% of MTHC common stock. Pursuantthird party toEITF Abstract No. 86-29,assist in determining theCompany considered this contribution to be a monetary transaction, given the significant amount of cash received and recorded the consideration received at fair value. The preferred stock received was determined to have afair value of$21.6the assets acquired. Simplicity has estimated net assets of approximately $75 millionbased on provisions of the stock and the prevailing market returns for similar investments, estimated to be 30%,as ofthe dateJuly 7, 2004.(16) Separate Financial Information of
the transaction. MTHC is the primary supplier toSubsidiary Guarantors of IndebtednessIn June of 1997, Briggs & Stratton issued $100 million of 7.25% senior notes and in May 2001, the Company
for iron castings. There are no other material arrangements between the Company and MTHC. Based on the above and the fair market valueissued $275 million ofall consideration received, the transaction resulted8.875% senior notes. In addition, Briggs & Stratton has a $275 million revolving credit facility that expires ina $16.5 million gain. 30NOTES... - -------------------------------------------------------------------------------- (15) SEPARATE FINANCIAL INFORMATION OF SUBSIDIARY GUARANTORS OF INDEBTEDNESSMay 2009 used to finance seasonal working capital needs.Under the terms of Briggs & Stratton’s 8.875% senior notes, 7.25% senior notes and revolving credit agreement, (collectively, the
Company's Domestic Indebtedness (described in Note 6)“Domestic Indebtedness”),GPPBSPPG became a joint and several guarantor of the DomesticIndebtedness.Indebtedness (the “Guarantor”). The guarantee is a full and unconditional guarantee. Additionally, if at any time a domestic subsidiary ofthe CompanyBriggs & Stratton constitutes a significant domestic subsidiary, thenthesuch domestic subsidiary will also become a guarantor of the Domestic Indebtedness.Each guaranteeCurrently all of the Domestic Indebtedness is unsecured. If Briggs & Stratton were to fail to make a payment of interest or principal on itsNotes…
due date, the
obligation ofGuarantor is obligated to pay theguarantor and ranks equally and ratably with the existing and future senior unsecured obligations of that guarantor; accordingly, GPP has provided a full and unconditional guarantee of theoutstanding Domestic Indebtedness. Briggs & Stratton had the following outstanding amounts related to the guaranteed debt (in thousands):
June 27, 2004
Carrying
AmountMaximum
Guarantee8.875% Senior Notes, due March 15, 2011
$ 271,159 $ 275,000 7.25% Senior Notes, due September 15, 2007
$ 89,403 $ 90,000 Revolving Credit Facility, expiring May 2009
$ — $ 275,000 The following condensed
supplementalsupplements consolidating financial information reflects theoperations of GPP (in thousands of dollars):
BALANCE SHEET: BRIGGS & STRATTON GUARANTOR NON-GUARANTOR AS OF JUNE 30, 2002 CORPORATION SUBSIDIARY SUBSIDIARIES ELIMINATIONS CONSOLIDATED - ------------------- ----------- ---------- ------------ ------------ ------------Current Assets................................... $ 527,111 $ 96,534 $ 70,387 $ (24,088) $ 669,944 Investment in Subsidiary......................... 312,679 - - (312,679) Noncurrent Assets................................ 494,052 182,665 2,372 - 679,089 ------------ ----------- ------------ ----------- ----------- $ 1,333,842 $ 279,199 $ 72,759 $ (336,767) $ 1,349,033 ============ =========== ============ =========== =========== Current Liabilities.............................. $ 244,497 $ 10,133 $ 30,327 $ (18,934) $ 266,023 Long-Term Debt................................... 499,022 - - - 499,022 Other Long-Term Obligations...................... 135,192 (850) - - 134,342 Stockholders' Equity............................. 455,131 269,916 $ 42,432 $ (317,833) 449,646 ------------ ----------- ------------ ----------- ----------- $ 1,333,842 $ 279,199 $ 72,759 $ (336,767) $ 1,349,033 ============ =========== ============ =========== ===========
STATEMENT OF EARNINGS: FOR THE FISCAL YEAR ENDED JUNE 30, 2002 - ---------------------------------------Net Sales........................................ $ 1,334,891 $ 216,006 $ 80,976 $ (102,501) $ 1,529,372 Cost of Goods Sold............................... 1,102,548 195,533 62,416 (103,158) 1,257,339 ------------ ----------- ------------ ----------- ----------- Gross Profit................................... 232,343 20,473 18,560 657 272,033 Engineering, Selling, General and Administrative Expenses........................ 123,114 18,420 12,141 - 153,675 ------------ ----------- ------------ ----------- ----------- Income from Operations......................... 109,229 2,053 6,419 657 118,358 Interest Expense................................. (43,600) (50) (889) 106 (44,433) Other (Expense) Income, Net...................... 12,553 149 13,609 (19,726) 6,585 ------------ ----------- ------------ ----------- ----------- Income Before Provision for Income Taxes....... 78,182 2,152 19,139 (18,963) 80,510 Provision for Income Taxes....................... 25,062 761 1,567 - 27,390 ------------ ----------- ------------ ----------- ----------- Net Income....................................... $ 53,120 $ 1,391 $ 17,572 $ (18,963) $ 53,120 ============ =========== ============ =========== ===========31NOTES... - --------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS: BRIGGS & STRATTON GUARANTOR NON-GUARANTOR FOR THE FISCAL YEAR ENDED JUNE 30, 2002 CORPORATION SUBSIDIARY SUBSIDIARIES ELIMINATIONS CONSOLIDATED - --------------------------------------- ----------- ---------- ------------ ------------ ------------CASH FLOWS FROM OPERATING ACTIVITIES: Net Income ........................................ $ 53,120 $ 1,391 $ 17,572 $ (18,963) $ 53,120 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities- Depreciation and Amortization ................... 62,590 2,812 566 - 65,968 Equity in Earnings of Unconsolidated Affiliates.. (23,222) - 189 16,852 (6,181) (Gain) Loss on Disposition of Plant and Equipment ...................................... 3,593 (387) (14) - 3,192 Provision for Deferred Income Taxes ............. 12,103 8,183 - - 20,286 Change in Operating Assets and Liabilities- (Increase) Decrease in Receivables .............. (44,781) (1,361) (15,942) 5,312 (56,772) (Increase) Decrease in Inventories .............. 125,277 (2,352) (1,549) (657) 120,719 Increase in Prepaid Expenses and Other Current Assets ........................... (2,763) (122) (111) - (2,996) Increase (Decrease) in Accounts Payable, Accrued Liabilities and Income Taxes ........... 32,714 (2,958) 1,617 (5,312) 26,061 (Increase) Decrease in Prepaid Pension .......... (23,101) 289 - - (22,812) Other, Net ........................................ (17) (751) - - (768) --------- --------- --------- --------- --------- Net Cash Provided by Operating Activities ...... $ 195,513 $ 4,744 $ 2,328 $ (2,768) $ 199,817 --------- --------- --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to Plant and Equipment .................. $ (41,048) $ (1,824) $ (1,056) $ - $ (43,928) Proceeds Received on Disposition of Plant and Equipment ............................. 362 9 35 - 406 Other, Net ........................................ 5,120 - - 5,120 --------- --------- --------- --------- --------- Net Cash Used by Investing Activities .......... $ (35,566) $ (1,815) $ (1,021) $ - $ (38,402) --------- --------- --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net Borrowings (Repayments) on Loans and Notes Payable ................................... $ 3,022 $ (3,697) $ (1,021) $ - $ (1,696) Borrowings (Repayments) on Long-Term Debt .................................. (10,393) - - - (10,393) Cash Dividends Paid ............................... (27,219) - (2,768) 2,768 (27,219) Proceeds from Exercise of Stock Options ........... 1,078 - - - 1,078 Net Cash Provided by (Used by) --------- --------- --------- --------- --------- Financing Activities ........................ $ (33,512) $ (3,697) $ (3,789) $ 2,768 $ (38,230) --------- --------- --------- --------- --------- EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS .............................. $ (106) $ 1,040 $ 3,083 $ - $ 4,017 --------- --------- --------- --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .................................. $ 126,329 $ 272 $ 601 $ - $ 127,202 Cash and Cash Equivalents, Beginning of Year ....... 85,282 683 2,778 - 88,743 --------- --------- --------- --------- --------- Cash and Cash Equivalents, End of Year ............. $ 211,611 $ 955 $ 3,379 $ - $ 215,945 ========= ========= ========= ========= =========32NOTES ... - -------------------------------------------------------------------------------- The condensed supplemental consolidatedsummarized financial informationreflects the operationsofGPP for the 2001 fiscal yearBriggs & Stratton, its Guarantor and Non-Gurantor Subsidiaries (inthousandsthousands):
BALANCE SHEET:
As of June 27, 2004
Briggs & Stratton
CorporationGuarantor
SubsidiaryNon-Gurantor
SubsidiariesEliminations Consolidated Current Assets
$ 739,007 $ 243,300 $ 227,786 $ (228,100 ) $ 981,993 Investment in Subsidiary
352,207 — — (352,207 ) — Noncurrent Assets
471,395 175,439 8,326 — 655,160 $ 1,562,609 $ 418,739 $ 236,112 $ (580,307 ) $ 1,637,153 Current Liabilities
$ 226,627 $ 111,992 $ 180,791 $ (218,849 ) $ 300,561 Long-Term Debt
360,562 — — — 360,562 Other Long-Term Obligations
148,574 9,861 — — 158,435 Shareholders’ Equity
826,846 296,886 55,321 (361,458 ) 817,595 $ 1,562,609 $ 418,739 $ 236,112 $ (580,307 ) $ 1,637,153 As of June 29, 2003
Current Assets
$ 617,409 $ 159,067 $ 99,311 $ (68,640 ) $ 807,147 Investment in Subsidiary
333,848 — — (333,848 ) — Noncurrent Assets
483,227 180,903 3,916 — 668,046 $ 1,434,484 $ 339,970 $ 103,227 $ (402,488 ) $ 1,475,193 Current Liabilities
$ 256,476 $ 51,610 $ 53,846 $ (60,537 ) $ 301,395 Long-Term Debt
503,397 — — — 503,397 Other Long-Term Obligations
151,521 3,855 38 — 155,414 Shareholders' Equity
523,090 284,505 49,343 (341,951 ) 514,987 $ 1,434,484 $ 339,970 $ 103,227 $ (402,488 ) $ 1,475,193 Notes…
STATEMENT OF EARNINGS:
For the Fiscal Year Ended June 27, 2004
Briggs &
Stratton
CorporationGuarantor
SubsidiaryNon-Guarantor
SubsidiariesEliminations Consolidated Net Sales
$ 1,562,114 $ 460,122 $ 152,236 $ (227,108 ) $ 1,947,364 Cost of Goods Sold
1,205,950 405,720 120,253 (224,431 ) 1,507,492 Gross Profit
356,164 54,402 31,983 (2,677 ) 439,872 Engineering, Selling, General and Administrative Expenses
155,830 24,029 25,804 — 205,663 Income from Operations
200,334 30,373 6,179 (2,677 ) 234,209 Interest Expense
(37,236 ) (2 ) (84 ) (343 ) (37,665 ) Other (Expense) Income, Net
28,787 (55 ) 983 (21,255 ) 8,460 Income Before Provision for Income Taxes
191,885 30,316 7,078 (24,275 ) 205,004 Provision for Income Taxes
64,473 11,574 1,545 (8,702 ) 68,890 Net Income
$ 127,412 $ 18,742 $ 5,533 $ (15,573 ) $ 136,114 For the Fiscal Year Ended June 29, 2003
Net Sales
$ 1,369,785 $ 319,000 $ 116,875 $ (148,027 ) $ 1,657,633 Cost of Goods Sold
1,107,515 279,436 88,158 (145,555 ) 1,329,554 Gross Profit
262,270 39,564 28,717 (2,472 ) 328,079 Engineering, Selling, General and Administrative Expenses
141,497 20,776 15,884 — 178,157 Income from Operations
120,773 18,788 12,833 (2,472 ) 149,922 Interest Expense
(39,912 ) (10 ) (644 ) 177 (40,389 ) Other (Expense) Income, Net
28,177 (346 ) (8,941 ) (9,845 ) 9,045 Income Before Provision for Income Taxes
109,038 18,432 3,248 (12,140 ) 118,578 Provision for Income Taxes
34,892 6,328 2,856 (6,136 ) 37,940 Net Income
$ 74,146 $ 12,104 $ 392 $ (6,004 ) $ 80,638 For the Fiscal Year Ended June 30, 2002
Net Sales
$ 1,334,921 $ 216,243 $ 80,976 $ (102,840 ) $ 1,529,300 Cost of Goods Sold
1,104,862 195,630 62,340 (103,496 ) 1,259,336 Gross Profit
230,059 20,613 18,636 656 269,964 Engineering, Selling, General and Administrative Expenses
123,165 18,421 12,126 — 153,712 Income from Operations
106,894 2,192 6,510 656 116,252 Interest Expense
(43,600 ) (50 ) (889 ) 106 (44,433 ) Other Income, Net
14,800 8 13,521 (19,638 ) 8,691 Income Before Provision for Income Taxes
78,094 2,150 19,142 (18,876 ) 80,510 Provision for Income Taxes
26,552 761 1,567 (1,490 ) 27,390 Net Income
$ 51,542 $ 1,389 $ 17,575 $ (17,386 ) $ 53,120 Notes…
STATEMENT OF CASH FLOWS:
For the Fiscal Year Ended June 27, 2004
Briggs & Stratton
CorporationGuarantor
SubsidiaryNon-Guarantor
SubsidiariesEliminations Consolidated CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income
$ 127,412 $ 18,742 $ 5,533 $ (15,573 ) $ 136,114 Adjustments to Reconcile Net Income to Net Cash Provided by (Used by) Operating Activities:
Depreciation and Amortization
62,995 3,154 749 — 66,898 Equity in Earnings of Unconsolidated Affiliates
(17,274 ) — (500 ) 9,898 (7,876 ) Loss on Disposition of Plant and Equipment
6,252 163 975 — 7,390 Provision for Deferred Income Taxes
5,604 7,196 — — 12,800 Changes in Operating Assets and Liabilities:
Increase in Receivables
(34,485 ) (10,492 ) (132,053 ) 148,442 (28,588 ) Increase in Inventories
(61,003 ) (63,860 ) (5,475 ) 1,744 (128,594 ) (Increase) Decrease in Prepaid Expenses and Other Current Assets
(76 ) 645 1,448 — 2,017 Increase in Accounts Payable, Accrued Liabilities and Income Taxes
24,386 2,144 108,539 (130,373 ) 4,696 Increase in Prepaid Pension
(6,022 ) (10 ) (38 ) — (6,070 ) Other, Net
(15,086 ) (160 ) 2,223 — (13,023 ) Net Cash Provided by (Used by) Operating Activities
92,703 (42,478 ) (18,599 ) 14,138 45,764 CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Plant and Equipment
(43,526 ) (5,518 ) (3,918 ) — (52,962 ) Proceeds Received on Disposition of Plant and Equipment
659 61 — — 720 Refund of Cash Paid for Acquisition
5,686 — — — 5,686 Other, Net
4,617 — (225 ) — 4,392 Net Cash Used by Investing Activities
(32,564 ) (5,457 ) (4,143 ) — (42,164 ) CASH FLOWS FROM FINANCING ACTIVITIES:
Net (Repayments) Borrowings on Loans and Notes Payable
(50,550 ) 51,042 17,740 (18,067 ) 165 Issuance Cost of Debt
(1,789 ) — — — (1,789 ) Cash Dividends Paid
(30,408 ) — (3,929 ) 3,929 (30,408 ) Proceeds from Exercise of Stock Options
45,314 — — — 45,314 Net Cash (Used by) Provided by Financing Activities
(37,433 ) 51,042 13,811 (14,138 ) 13,282 EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
— (675 ) 1,372 — 697 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
22,706 2,432 (7,559 ) — 17,579 Cash and Cash Equivalents, Beginning of Year
304,103 1,575 19,137 — 324,815 Cash and Cash Equivalents, End of Year
$ 326,809 $ 4,007 $ 11,578 $ — $ 342,394 Notes…
STATEMENT OF CASH FLOWS:
For the Fiscal Year Ended June 29, 2003
Briggs & Stratton
CorporationGuarantor
SubsidiaryNon-Guarantor
Subsidiaries
Eliminations Consolidated CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income
$ 74,146 $ 12,104 $ 392 $ (6,004 ) $ 80,638 Adjustments to Reconcile Net Income to Net Cash Provided by (Used by) Operating Activities:
Depreciation and Amortization
60,268 2,651 607 — 63,526 Equity in (Earnings) Loss of Unconsolidated Affiliates
(9,054 ) — 177 3,653 (5,224 ) Loss (Gain) on Disposition of Plant and Equipment
4,900 (1,005 ) (45 ) — 3,850 Provision for Deferred Income Taxes
17,569 6,709 — — 24,278 Change in Operating Assets and Liabilities:
(Increase) Decrease in Receivables
(1,122 ) (29,141 ) 449 23,856 (5,958 ) Decrease (Increase) in Inventories
9,542 (14,217 ) (9,608 ) 2,351 (11,932 ) Increase in Prepaid Expenses and Other Current Assets
(2,098 ) (807 ) (1,758 ) — (4,663 ) Increase in Accounts Payable,
Accrued Liabilities and Income Taxes
21,130 12,331 34,716 (23,856 ) 44,321 (Increase) Decrease in Prepaid Pension
(13,609 ) 43 — — (13,566 ) Other, Net
(5,700 ) 42 (2,217 ) — (7,875 ) Net Cash Provided by (Used by) Operating Activities
155,972 (11,290 ) 22,713 — 167,395 CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Plant and Equipment
(34,855 ) (4,251 ) (1,048 ) — (40,154 ) Proceeds Received on Disposition of Plant and Equipment
255 3,135 74 — 3,464 Other, Net
6,080 — 3,781 — 9,861 Net Cash (Used by) Provided by Investing Activities
(28,520 ) (1,116 ) 2,807 — (26,829 ) CASH FLOWS FROM FINANCING ACTIVITIES:
Net (Repayments) Borrowings on Loans and Notes Payable
(12,741 ) 12,191 (14,405 ) — (14,955 ) Cash Dividends Paid
(27,709 ) — — — (27,709 ) Proceeds from Exercise of Stock Options
5,490 — — — 5,490 Net Cash (Used by) Provided by Financing Activities
(34,960 ) 12,191 (14,405 ) — (37,174 ) EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
— 835 4,643 — 5,478 NET INCREASE IN CASH AND CASH EQUIVALENTS
92,492 620 15,758 — 108,870 Cash and Cash Equivalents, Beginning of Year
211,611 955 3,379 — 215,945 Cash and Cash Equivalents, End of Year
$ 304,103 $ 1,575 $ 19,137 $ — $ 324,815 Notes…
STATEMENT OF CASH FLOWS:
For the Fiscal Year Ended June 30, 2002
Briggs & Stratton
CorporationGuarantor
SubsidiaryNon-Guarantor
Subsidiaries
Eliminations Consolidated CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income
$ 51,542 $ 1,389 $ 17,575 $ (17,386 ) $ 53,120 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation and Amortization
62,590 2,812 566 — 65,968 Equity in (Earnings) Loss of Unconsolidated Affiliates
(21,645 ) — 189 15,275 (6,181 ) Loss (Gain) on Disposition of Plant and Equipment
3,593 (387 ) (14 ) — 3,192 Provision for Deferred Income Taxes
12,103 8,183 — — 20,286 Change in Operating Assets and Liabilities:
Increase in Receivables
(44,710 ) (1,341 ) (15,945 ) 5,312 (56,684 ) Decrease (Increase) in Inventories
126,271 (2,352 ) (1,549 ) (657 ) 121,713 Increase in Prepaid Expenses and Other Current Assets
(1,286 ) (122 ) (111 ) — (1,519 ) Increase (Decrease) in Accounts Payable, Accrued Liabilities and Income Taxes
31,650 (2,976 ) 1,617 (5,312 ) 24,979 (Increase) Decrease in Prepaid Pension
(23,101 ) 289 — — (22,812 ) Other, Net
(1,494 ) (751 ) — — (2,245 ) Net Cash Provided by Operating Activities
195,513 4,744 2,328 (2,768 ) 199,817 CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Plant and Equipment
(41,048 ) (1,824 ) (1,056 ) — (43,928 ) Proceeds Received on Disposition of Plant and Equipment
362 9 35 — 406 Other, Net
5,120 — — — 5,120 Net Cash Used by Investing Activities
(35,566 ) (1,815 ) (1,021 ) — (38,402 ) CASH FLOWS FROM FINANCING ACTIVITIES:
Net Borrowings (Repayments) on Loans and Notes Payable
3,022 (3,697 ) (1,021 ) — (1,696 ) Repayments on Long-Term Debt
(10,393 ) — — — (10,393 ) Cash Dividends Paid
(27,219 ) — (2,768 ) 2,768 (27,219 ) Proceeds from Exercise of Stock Options
1,078 — — — 1,078 Net Cash Used by Financing Activities
(33,512 ) (3,697 ) (3,789 ) 2,768 (38,230 ) EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
(106 ) 1,040 3,083 — 4,017 NET INCREASE IN CASH AND CASH EQUIVALENTS
126,329 272 601 — 127,202 Cash and Cash Equivalents, Beginning of Year
85,282 683 2,778 — 88,743 Cash and Cash Equivalents, End of Year
$ 211,611 $ 955 $ 3,379 $ — $ 215,945 Report of
dollars):
BALANCE SHEET: BRIGGS & STRATTON GUARANTOR NON-GUARANTOR AS OF JULY 1, 2001 CORPORATION SUBSIDIARY SUBSIDIARIES ELIMINATIONS CONSOLIDATED - ------------------ ----------- ---------- ------------ ------------ ------------Current Assets .............................. $ 482,158 $ 98,523 $ 52,182 $ (19,433) $ 613,430 Investment in Subsidiary .................... 292,543 - - (292,543) - Noncurrent Assets ........................... 491,624 188,535 2,606 - 682,765 ----------- ----------- ----------- ------------ ----------- $ 1,266,325 $ 287,058 $ 54,788 $ (311,976) $ 1,296,195 =========== =========== =========== ============ =========== Current Liabilities ......................... $ 207,336 $ 18,737 $ 29,731 $ (13,622) $ 242,182 Long-Term Debt .............................. 508,134 - - - 508,134 Other Long-Term Obligations ................. 122,292 835 - - 123,127 Stockholders' Equity ........................ 428,563 267,486 25,057 (298,354) 422,752 ----------- ----------- ----------- ------------ ----------- $ 1,266,325 $ 287,058 $ 54,788 $ (311,976) $ 1,296,195 =========== =========== =========== ============ =========== STATEMENT OF EARNINGS: FOR THE FISCAL YEAR ENDED JULY 1, 2001 - -------------------------------------- Net Sales ................................... $ 1,251,462 $ 29,587 $ 80,701 $ (51,577) $ 1,310,173 Cost of Goods Sold .......................... 1,037,817 25,814 61,159 (51,407) 1,073,383 ----------- ----------- ----------- ------------ ----------- Gross Profit .............................. 213,645 3,773 19,542 (170) 236,790 Engineering, Selling, General and Administrative Expenses ................... 124,146 2,656 10,882 - 137,684 ----------- ----------- ----------- ------------ ----------- Income from Operations .................... 89,499 1,117 8,660 (170) 99,106 Interest Expense ............................ (28,024) (23) (2,642) 24 (30,665) Other (Expense) Income, Net ................. 8,574 (1,073) 8,841 (12,910) 3,432 ----------- ----------- ----------- ------------ ----------- Income Before Provision for Income Taxes... 70,049 21 14,859 (13,056) 71,873 Provision for Income Taxes .................. 22,036 7 1,817 - 23,860 ----------- ----------- ----------- ------------ ----------- Net Income .................................. $ 48,013 $ 14 $ 13,042 $ (13,056) $ 48,013 =========== =========== =========== ============ ===========33NOTES ... - --------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS: BRIGGS & STRATTON GUARANTOR NON-GUARANTOR FOR THE FISCAL YEAR ENDED JULY 1, 2001 CORPORATION SUBSIDIARY SUBSIDIARIES ELIMINATIONS CONSOLIDATED - -------------------------------------- ----------- ---------- ------------ ------------ ------------CASH FLOWS FROM OPERATING ACTIVITIES: Net Income ....................................... $ 48,013 $ 14 $ 13,042 $ (13,056) $ 48,013 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities- Depreciation and Amortization ................... 57,724 1,349 638 - 59,711 Equity in Earnings of Unconsolidated Affiliates.. (5,762) - 159 562 (5,041) (Gain) Loss on Disposition of Plant and Equipment ...................................... 1,499 - (6) - 1,493 Provision for Deferred Income Taxes ............. 17,691 282 - - 17,973 Change in Operating Assets and Liabilities- Decrease in Receivables ......................... 35,479 1,868 5,375 (8,036) 34,686 (Increase) Decrease in Inventories .............. (6,325) (2,811) 1,659 170 (7,307) (Increase) Decrease in Prepaid Expenses and Other Current Assets ........................... 22 89 (161) - (50) Increase (Decrease) in Accounts Payable, Accrued Liabilities and Income Taxes ........... (47,372) 4,349 (11,753) 8,036 (46,740) (Increase) Decrease in Prepaid Pension .......... (28,646) 268 - - (28,378) Other, Net ....................................... (6,183) (209) - - (6,392) Net Cash Provided by (Used in) --------- --------- --------- --------- --------- Operating Activities .......................... $ 66,140 $ 5,199 $ 8,953 $ (12,324) $ 67,968 --------- --------- --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to Plant and Equipment ................. $ (60,262) $ (481) $ (579) $ - $ (61,322) Proceeds Received on Disposition of Plant and Equipment ............................. 4,113 - 39 - 4,152 Investments in Subsidiaries, Net of Cash Acquired ................................... (270,632) 456 3,002 - (267,174) Other, Net ....................................... 6,434 - (138) - 6,296 Net Cash Provided by (Used by) --------- --------- --------- --------- --------- Investing Activities .......................... $(320,347) $ (25) $ 2,324 $ - $(318,048) --------- --------- --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net Borrowings (Repayments) on Loans and Notes Payable ................................... $ (41,175) $ (4,334) $ 2,935 $ - $ (42,574) Borrowings (Repayments) on Long-Term Debt .................................. 399,415 - - - 399,415 Cash Dividends Paid .............................. (26,763) - (12,324) 12,324 (26,763) Proceeds from Exercise of Stock Options .......... (5,843) - - - (5,843) Net Cash Provided by (Used by) --------- --------- --------- --------- --------- Financing Activities .......................... $ 325,634 $ (4,334) $ (9,389) $ 12,324 $ 324,235 --------- --------- --------- --------- --------- EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS ............................. $ - $ (157) $ (2,244) $ - $ (2,401) --------- --------- --------- --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................................. $ 71,427 $ 683 $ (356) $ - $ 71,754 Cash and Cash Equivalents, Beginning of Year ...... 13,855 - 3,134 - 16,989 --------- --------- --------- --------- --------- Cash and Cash Equivalents, End of Year ............ $ 85,282 $ 683 $ 2,778 $ - $ 88,743 ========= ========= ========= ========= =========34INDEPENDENT AUDITORS' REPORTS - --------------------------------------------------------------------------------Independent Registered Public Accounting FirmTo the Shareholders of Briggs & Stratton Corporation:
We have audited the accompanying consolidated balance sheet of Briggs & Stratton Corporation (a Wisconsin Corporation) and subsidiaries, as of June 30, 2002, and the related consolidated statement of earnings, shareholders' investment and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. The consolidated financial statements of Briggs & Stratton Corporation as of July 1, 2001 and for the years ended July 1, 2001 and July 2, 2000 were audited by other auditors who have ceased operations. Those other auditors expressed an unqualified opinion on those consolidated financial statements in their report dated July 26, 2001. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, such 2002 financial statements present fairly, in all material respects, the financial position of Briggs & Stratton Corporation and subsidiaries, as of June 30, 2002, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP Milwaukee, Wisconsin August 1, 2002 THIS REPORT SET FORTH BELOW IS A COPY OF A PREVIOUSLY ISSUED AUDIT REPORT BY ARTHUR ANDERSEN LLP. THIS REPORT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP IN CONNECTION WITH ITS INCLUSION IS THIS FORM 10-K. To the Shareholders of Briggs & Stratton Corporation:We have audited the accompanying consolidated balance sheets of Briggs & Stratton Corporation (a Wisconsin Corporation) and subsidiaries as of
July 1, 2001June 27, 2004 andJuly 2, 2000June 29, 2003, and the related consolidated statements of earnings,shareholders'shareholders’ investment and cashflowflows for each of the three years in the period endedJuly 1, 2001.June 27, 2004. These financial statements are the responsibility of theCompany'sCompany’s management. Our responsibility is to express an opinion on these financial statements based on our audits.We conducted our audits in accordance with
auditingthe standardsgenerally accepted inof theUnited States.Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion,
thesuch consolidated financial statementsreferred to abovepresent fairly, in all material respects, the financial position of Briggs & Stratton Corporation and subsidiaries as ofJuly 1, 2001June 27, 2004 andJuly 2, 2000June 29, 2003, and the results of their operations and their cash flows for each of the three years in the period endedJuly 1, 2001,June 27, 2004, in conformity with accounting principles generally accepted in the UnitedStates. ARTHUR ANDERSENStates of America.Deloitte & Touche LLP
Milwaukee, Wisconsin
July
26, 2001 35QUARTERLY FINANCIAL DATA, DIVIDEND AND MARKET INFORMATION (UNAUDITED) - ---------------------------------------------------------------------22, 2004
In Thousands Per Share of Common Stock --------------------------------------------- --------------------------------------------------- Market Price Range on New York Net Net Stock Exchange Quarter Net Gross Income Income Dividends ------------------- Ended Sales Profit (Loss) (Loss) Declared High Low - ----- ----- ------ ------ ------ -------- ------ ------FISCAL 2002 SEPTEMBER $ 219,629(1) $ 19,821(1) $ (17,424) $ (.81) $ .31 $ 43.85 $ 29.65 DECEMBER 333,689(1) 54,994(1) 2,379 .11 .31 43.99 29.81 MARCH 516,758 102,495 37,614 1.58 .32 48.39 38.54 JUNE 459,296 94,723 30,551 1.30 .32 46.35 36.71 ---------- ---------- ---------- ---------- ---------- TOTAL $1,529,372 $ 272,033 $ 53,120 $ 2.36(2) $ 1.26 ========== ========== ========== ========== ========== Fiscal 2001 September $ 180,763(1) $ 25,312(1) $ (6,304) $ (.29) $ .31 $ 44.56 $ 32.13 December 367,720(1) 69,117(1) 19,928 .92 .31 46.00 30.38 March 430,187 85,899 29,889 1.38 .31 48.38 36.50 June 331,503 56,462 4,500 .21 .31 45.90 35.00 ---------- ---------- ---------- ---------- ---------- Total $1,310,173 $ 236,790 $ 48,013 $ 2.21(2) $ 1.24 ========== ========== ========== ========== ==========Quarterly Financial Data, Dividend and Market Information (Unaudited)
In Thousands Per Share of Common Stock Quarter
EndedNet
SalesGross
ProfitNet
Income
(Loss)Net
Income
(Loss)Dividends
DeclaredMarket Price Range
on New York
Stock ExchangeHigh Low Fiscal 2004
September
$ 331,395 $ 60,195 $ 4,016 $ .18 $ .33 $ 60.86 $ 49.35 December
415,984 90,846 20,635 .87 .33 68.64 58.76 March
654,681 167,767 71,268 2.88 .33 70.55 63.36 June
545,304 121,064 40,195 1.61 .33 88.44 66.59 Total
$ 1,947,364 $ 439,872 $ 136,114 $ 5.53 (1) $ 1.32 Fiscal 2003
September
$ 236,496 $ 35,793 $ (7,027 ) $ (.32 ) $ .32 $ 40.24 $ 30.75 December
352,562 67,640 11,744 .53 .32 43.36 32.12 March
560,431 116,220 42,975 1.81 .32 44.40 36.94 June
508,144 108,426 32,946 1.39 .32 51.50 38.06 Total
$ 1,657,633 $ 328,079 $ 80,638 $ 3.49 (1) $ 1.28 The number of record holders of Briggs & Stratton Corporation Common Stock on August
22, 200225, 2004 was4,669. The above amounts include the acquisition of GPP since May 15, 2001. Refer to the Notes to Consolidated Financial Statements.4,160.Net Income per share of Common Stock represents Diluted Earnings per Share.
(1) Reflects the adoption of EITF No. 01-09 in the third quarter of fiscal 2002. Refer to the Notes to Consolidated Financial Statements. (2) Refer to Note 2 to Consolidated Financial Statements, for information about earnings per share. Amounts do not total because of differing numbers of shares outstanding at the end of each quarter. 36ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
(1) Refer to Note 2 to Consolidated Financial Statements, for information about Diluted Earnings per Share. Amounts do not total because of differing numbers of shares outstanding at the end of each quarter.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Briggs & Stratton changed independent accountants in
May 2002August 2004 fromArthur AndersenDeloitte & Touche LLP toDeloitte & TouchePricewaterhouseCoopers LLP. Information regarding the change in independent accountants was reported in Briggs &Stratton'sStratton’s Current Report on Amended Form8-KA8-K datedMay 20, 2002.August 4, 2004. There were no disagreements or any reportable events subject to Item 304(b) requiring disclosure.
ITEM 9A. CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures. The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act.
(b) Internal Control Over Financial Reporting. There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth fiscal quarter that have materially affected, or are reasonable likely to materially affect, the Company’s internal control over financial reporting.
ITEM 9B. OTHER INFORMATION Briggs & Stratton has no information to report pursuant to Item 9B.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Executive Officers. Reference is made to “Executive Officers of Registrant” in Part I after Item 4.
(b) Directors. The information required by this Item is in Briggs & Stratton’s definitive Proxy Statement, prepared for the 2004 Annual Meeting of Shareholders, under the caption “Election of Directors”, and is incorporated herein by reference.
(c) Section 16 Compliance. The information required by this Item is in Briggs & Stratton’s definitive Proxy Statement, prepared for the 2004 Annual Meeting of Shareholders, under the caption “Security Ownership of Management – Section 16(a) Beneficial Ownership Reporting Compliance”, and is incorporated herein by reference.
(d) Audit Committee Financial Expert. The information required by this Item is in Briggs & Stratton’s definitive Proxy Statement, prepared for the 2004 Annual Meeting of Shareholders, under the caption “Corporate Governance- Audit Committee”, and is incorporated herein by reference.
(e) Identification of Audit Committee. The information required by this Item is in Briggs & Stratton’s definitive Proxy Statement, prepared for the 2004 Annual Meeting of Shareholders, under the caption “Corporate Governance- Audit Committee”, and is incorporated herein by reference.
(f) Code of Ethics. Briggs & Stratton has adopted a written code of ethics, referred to as the Briggs & Stratton Business Integrity Manual applicable to all directors, officers and employees, which includes provisions related to accounting and financial matters applicable to the Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer and Controller. The Briggs & Stratton Business Integrity Manual is available on the Company’s corporate website at www.briggsandstratton.com. If the Company makes any substantive
amendment to, or grants any waiver of, the code of ethics for any director or officer, Briggs & Stratton will disclose the nature of such amendment or waiver on its corporate website or in a Current Report on Form 8-K.
ITEM 11. EXECUTIVE COMPENSATION The information in Briggs &
Stratton'sStratton’s definitive Proxy Statement, prepared for the2002 Annual Meeting of Shareholders, under the captions "Election of Directors" and "Security Ownership of Management - Section 16(a) Beneficial Ownership Reporting Compliance", is incorporated herein by reference. The information concerning "Executive Officers of the Registrant", as a separate item, appears in Part I of this Form 10-K. ITEM 11. EXECUTIVE COMPENSATION The information in Briggs & Stratton's definitive Proxy Statement, prepared for the 20022004 Annual Meeting of Shareholders, concerning this item, in the subsection titled"Director Compensation"“Director Compensation” under the caption"Election“Election ofDirectors"Directors” and the"Executive Compensation"“Executive Compensation” section, is incorporated herein by reference.ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information in Briggs &
Stratton'sStratton’s definitive Proxy Statement, prepared for the20022004 Annual Meeting of Shareholders, concerning this item, under the captions"Security“Security Ownership of Certain BeneficialOwners" and "SecurityOwners”, “Security Ownership ofManagement",Management” and “Equity Compensation Plan Information” is incorporated herein by reference.EQUITY COMPENSATION PLAN INFORMATION In addition to the information that is incorporated in this item by reference to the Proxy Statement, the following chart gives aggregate information under all equity compensation plans of Briggs & Stratton through June 30, 2002.(1) Represents options and restricted stock granted under Briggs & Stratton's Stock Incentive Plan. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSBriggs & Stratton has no relationships or related transactions to report pursuant to Item 13.
ITEM 14. CONTROLS AND PROCEDURES There were no significant changes
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required by this Item is in Briggs &
Stratton's internal controls or in other factors that could significantly affect these controls subsequent toStratton’s definitive Proxy Statement, prepared for thetime when those controls were last evaluated by management, including any corrective actions with respect to significant deficiencies and material weaknesses. 37PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial Statements The following financial statements are included2004 Annual Meeting of Shareholders, under the caption"Financial Statements“Audit Committee Report,” andSupplementary Data" in Part II, Item 8 and areis incorporated herein byreference: Consolidated Balance Sheets, June 30, 2002 and July 1, 2001 For the Years Ended June 30, 2002, July 1, 2001 and July 2, 2000: Consolidated Statements of Earnings Consolidated Statements of Shareholders' Investment Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Independent Auditors' Reports 2. Financial Statement Schedules Schedule II - Valuation and Qualifying Accounts Independent Auditors' Report Report of Independent Public Accountantsreference.PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
1. Financial Statements
The following financial statements are included under the caption “Financial Statements and Supplementary Data” in Part II, Item 8 and are incorporated herein by reference:
Consolidated Balance Sheets, June 27, 2004 and June 29, 2003
18 For the Fiscal Years Ended June 27, 2004, June 29, 2003 and June 30, 2002:
20 21 22 23 44 2. Financial Statement Schedules
48 48 All other financial statement schedules provided for in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions.
3. Exhibits
3. Exhibits Refer to the Exhibit Index
following the Certification Page,incorporated herein by reference. Each management contract or compensatory plan or arrangement required to be filed as an exhibit to this report is identified in the Exhibit Index by an asterisk following the Exhibit Number.(b) Reports on Form 8-K On May 23, 2002 and May 30, 2002, Briggs & Stratton filed a report on Form 8-K and 8-KA respectively, dated May 20, 2002 to report a change in its independent public accounting firm. 38BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
SCHEDULE II
-– VALUATION AND QUALIFYING ACCOUNTSFOR FISCAL YEARS ENDED JUNE 27, 2004, JUNE 29, 2003 AND JUNE 30, 2002
JULY 1, 2001 AND JULY 2, 2000
Reserve for Balance Additions Balance Doubtful Accounts Beginning Charged Charges to End of Receivable of Year to Earnings Reserve, Net Other Year ---------- ------- ----------- ------------ ----- ----2002 $1,599,000 (1,222,000) 1,326,000 - $1,703,000 2001 $1,544,000 3,631,000 (3,667,000) 91,000* $1,599,000 2000 $1,516,000 52,000 (24,000) - $1,544,000*Consists of additions to the reserve related to the acquisition of GPP.
Reserve for Doubtful Accounts Receivable
Balance
Beginning of
YearAdditions
Charged to
EarningsCharges to
Reserve, NetOther Balance End
of Year2004
$ 1,780,000 1,899,000 (2,095,000 ) — $ 1,584,000 2003
$ 1,703,000 129,000 (52,000 ) — $ 1,780,000 2002
$ 1,599,000 (1,222,000 ) 1,326,000 — $ 1,703,000 REPORT OF INDEPENDENT
AUDITORS' REPORTREGISTERED PUBLIC ACCOUNTING FIRMTo the Shareholders of Briggs & Stratton Corporation:
We have audited the consolidated financial statements of Briggs & Stratton Corporation and subsidiaries as of June
30, 2002,27, 2004 and June 29, 2003, and for each of theyear thenthree years in the period ended June 27, 2004, and have issued our report thereon datedAugust 1, 2002;July 22, 2004; such report is included elsewhere in this Form 10-K. Ourauditaudits also included the consolidated financial statement schedule of Briggs & Stratton Corporation for theyearyears ended June 27, 2004, June 29, 2003 and June 30, 2002, listed in Item 15. This consolidated financial statement schedule is the responsibility of theCompany'sCompany’s management. Our responsibility is to express an opinion based on ouraudit.audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic2002consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.DELOITTEDeloitte &
TOUCHETouche LLPMilwaukee, Wisconsin
August 1, 2002 THIS REPORT SET FORTH BELOW IS A COPY OF A PREVIOUSLY ISSUED AUDIT REPORT BY ARTHUR ANDERSEN LLP. THIS REPORT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP IN CONNECTION WITH ITS INCLUSION IS THIS FORM 10-K. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders of Briggs & Stratton Corporation: We have audited, in accordance with auditing standards generally accepted in the United States, the consolidated financial statements included in the Briggs & Stratton Corporation annual report to shareholders on Form 10-K, and have issued our report thereon datedJuly
26, 2001. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in the index in item 14(a)(2) is the responsibility of the Corporation's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. The schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Milwaukee, Wisconsin July 26, 2001 3922, 2004 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
BRIGGS & STRATTON CORPORATION By /s/ James E. Brenn ------------------------------- James E. Brenn September 17 , 2002 Senior Vice President and Chief - ------------- Financial Officer
BRIGGS & STRATTON CORPORATION
By /s/ James E. Brenn September 9, 2004
James E. Brenn
Senior Vice President and
Chief Financial OfficerPursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.*
/s/ John S. Shiely /s/ David L. Burner - ----------------------------------------- ------------------------------- John S. Shiely David L. Burner President and Chief Executive Officer and Director Director (Principal Executive Officer) /s/ E. Margie Filter /s/ James E. Brenn ------------------------------- - ----------------------------------------- E. Margie Filter James E. Brenn Director Senior Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) /s/ Peter A. Georgescu ------------------------------- Peter A. Georgescu /s/ F. P. Stratton, Jr. Director - ----------------------------------------- F. P. Stratton, Jr. Chairman and Director /s/ Robert J. O'Toole ------------------------------- Robert J. O'Toole /s/ Jay H. Baker Director - ----------------------------------------- Jay H. Baker Director /s/ Charles I. Story ------------------------------- Charles I. Story /s/ Michael E. Batten Director - ----------------------------------------- Michael E. Batten Director *Each signature affixed as of September 17 , 2002. -------------- 40CERTIFICATIONS CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER I, John S. Shiely, certify that: (1) I have reviewed this Annual Report on Form 10-K of Briggs & Stratton Corporation; (2) Based on my knowledge, this Annual Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; (3) Based on my knowledge, the financial statements, and other financial information included in this Annual Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Annual Report. Date: September 17, 2002 /s/ John S. Shiely ----------------------------------- John S. Shiely, President and Chief Executive Officer - Principal Executive Officer CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER I, James E. Brenn, certify that: (1) I have reviewed this Annual Report on Form 10-K of Briggs & Stratton Corporation; (2) Based on my knowledge, this Annual Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; (3) Based on my knowledge, the financial statements, and other financial information included in this Annual Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Annual Report. Date: September 17, 2002 /s/ James E. Brenn --------------------------------------------- James E. Brenn, Senior Vice President and Chief Financial Officer - Principal Financial Officer 41
/s/ John S. Shiely /s/ Michael E. Batten John S. Shiely
Chairman, President and Chief Executive
Officer and Director (Principal Executive Officer)Michael E. Batten
Director/s/ James E. Brenn /s/ David L. Burner James E. Brenn
Senior Vice President and Chief Financial
Officer (Principal Financial Officer)David L. Burner
Director/s/ Ricky T. Dillon /s/ Mary K. Bush Ricky T. Dillon
Controller (Principal Accounting Officer)Mary K. Bush
Director/s/ William F. Achtmeyer /s/ Robert J. O’Toole William F. Achtmeyer
DirectorRobert J. O’Toole
Director/s/ Jay H. Baker /s/ Charles I. Story Jay H. Baker
DirectorCharles I. Story
Director/s/ Brian C. Walker Brian C. Walker
Director* Each signature affixed as of
September 9, 2004.BRIGGS & STRATTON CORPORATION
(Commission(Commission File No. 1-1370)
EXHIBIT INDEX
20022004 ANNUAL REPORT ON FORM 10-K
Exhibit Number Document Description - ------ -------------------- 2 Agreement and Plan of Merger, dated as of March 21, 2001, by and among Briggs & Stratton Corporation, GPP Merger Corporation, Generac Portable Products, Inc. and The Beacon Group III - Focus Value Fund, L.P. (Filed as Exhibit 2 to the Company's Report on Form 8-K dated March 21, 2001 and incorporated by reference herein.) 3.1 Articles of Incorporation. (Filed as Exhibit 3.2 to the Company's Report on Form 10-Q for the quarter ended October 2, 1994 and incorporated by reference herein.) 3.2 Bylaws, as amended and restated June 14, 2001. (Filed as Exhibit 99 to the Company's Report on Form 8-K dated June 14, 2001 and incorporated by reference herein.) 4.0 Rights Agreement dated as of August 7, 1996, between Briggs & Stratton Corporation and Firstar Trust Company which includes the form of Right Certificate as Exhibit A and the Summary of Rights to Purchase Common Shares as Exhibit B. (Filed as Exhibit 4.1 to the Company's Registration Statement on Form 8-A, dated as of August 7, 1996 and incorporated by reference herein.) 4.1 Indenture dated as of June 4, 1997 between Briggs & Stratton Corporation and Bank One, N.A., as Trustee. (Filed as Exhibit 4.1 to the Company's Report on Form 8-K dated May 30, 1997 and incorporated by reference herein.) 4.2 Form of 7-1/4% Note due September 15, 2007 of Briggs & Stratton Corporation issued pursuant to the Indenture dated as of June 4, 1997 between Briggs & Stratton Corporation and Bank One, N.A., as Trustee. (Filed as Exhibit 4.2 to the Company's Report on Form 8-K dated May 30, 1997 and incorporated by reference herein.) 4.3 Resolutions of the Board of Directors of Briggs & Stratton Corporation authorizing the public offering of debt securities of Briggs & Stratton Corporation in an aggregate principal amount of up to $175,000,000. (Filed as Exhibit 4.3 to the Company's Report on Form 8-K dated May 30, 1997 and incorporated by reference herein.) 4.4 Actions of the Authorized Officers of Briggs & Stratton Corporation authorizing the issuance of $100,000,000 aggregate principal amount of 7-1/4% Notes due September 15, 2007. (Filed as Exhibit 4.4 to the Company's Report on Form 8-K dated May 30, 1997 and incorporated by reference herein.) 4.5 Officers' Certificate and Company Order of Briggs & Stratton Corporation executed in conjunction with the issuance of $100,000,000 aggregate principal amount of 7-1/4% Notes due September 15, 2007. (Filed as Exhibit 4.5 to the Company's Report on Form 8-K dated May 30, 1997 and incorporated by reference herein.) 4.6 Indenture dated as of May 14, 2001 between Briggs & Stratton Corporation, the Guarantors listed on Schedule I thereto and Bank One, N.A., as Trustee, providing for 5.00% Convertible Senior Notes due May 15, 2006 (including form of Note, form of Notation of Guarantee and other exhibits). (Filed as Exhibit 4.6 to the Company's Registration Statement on Form S-3 filed on July 3, 2001, Registration No. 333-64490 and incorporated herein by reference.) 42Exhibit Number Document Description - ------ -------------------- 4.7 Form of Supplemental Indenture dated as of May 15, 2001 between Subsequent Guarantors (Generac Portable Products, Inc., GPPD, Inc., GPPW, Inc. and Generac Portable Products, LLC), Briggs & Stratton Corporation, and Bank One, N.A., as Trustee. (Filed as Exhibit 4.7 to the Company's Registration Statement on Form S-3 filed on July 3, 2001, Registration No. 333-64490 and incorporated herein by reference.) 4.8 Registration Rights Agreement dated as of May 8, 2001 between Briggs & Stratton Corporation and Goldman, Sachs & Co. and Banc of America Securities LLC, as Representatives of the Several Purchasers, providing for the registration of the 5.00% Convertible Senior Notes due May 15, 2006. (Filed as Exhibit 4.8 to the Company's Registration Statement on Form S-3 filed on July 3, 2001, Registration No. 333-64490 and incorporated herein by reference.) 4.9 Indenture dated as of May 14, 2001 between Briggs & Stratton Corporation, the Guarantors listed on Schedule I thereto and Bank One, N.A., as Trustee, providing for 8.875% Senior Notes due March 15, 2011 (including form of Note, form of Notation of Guarantee and other exhibits). (Filed as Exhibit 4.9 to the Company's Registration Statement on Form S-3 filed on July 3, 2001, Registration No. 333-64490 and incorporated herein by reference.) 4.10 Form of Supplemental Indenture dated as of May 15, 2001 between Subsequent Guarantors (Generac Portable Products, Inc., GPPD, Inc., GPPW, Inc. and Generac Portable Products, LLC), Briggs & Stratton Corporation, and Bank One, N.A., as Trustee. (Filed as Exhibit 4.10 to the Company's Registration Statement on Form S-3 filed on July 3, 2001, Registration No. 333-64490 and incorporated herein by reference.) 4.11 Exchange and Registration Rights Agreement dated as of May 9, 2001 between Briggs & Stratton Corporation and Goldman, Sachs & Co. and Banc of America Securities LLC, as Representatives of the Several Purchasers, providing for the registration or exchange of the 8.875% Senior Notes due March 15, 2011. (Filed as Exhibit 4.11 to the Company's Registration Statement on Form S-3 filed on July 3, 2001, Registration No. 333-64490 and incorporated herein by reference.) 4.12 First Supplemental Indenture dated as of May 14, 2001 between Briggs & Stratton Corporation and Bank One, N.A., as Trustee under the Indenture dated as of June 4, 1997. (Filed as Exhibit 4.12 to the Company's Registration Statement on Form S-3 filed on July 3, 2001, Registration No. 333-64490 and incorporated herein by reference.) 4.13 Form of Indenture Supplement to Add a Subsidiary Guarantor dated as of May 15, 2001 among each Subsidiary Guarantor (Generac Portable Products, Inc., GPPD, Inc., GPPW, Inc. and Generac Portable Products, LLC), Briggs & Stratton Corporation, and Bank One, N.A., as Trustee. (Filed as Exhibit 4.13 to the Company's Registration Statement on Form S-3 filed on July 3, 2001, Registration No. 333-64490 and incorporated herein by reference.) 4.14 Multicurrency Credit Agreement dated as of September 28, 2001, by and among Briggs & Stratton Corporation, Bank of America, N.A., as Administrative Agent, and the other financial institutions party thereto (the "Credit Agreement"). (Filed as Exhibit 4.1 (a) to the Company's Report on Form 10-Q for the quarter ended December 30, 2001 and incorporated by reference herein.) 43Exhibit Number Document Description - ------ -------------------- 4.15 First Amendment to the Credit Agreement, dated as of November 15, 2001. (Filed as Exhibit 4.1 (b) to the Company's Report on Form 10-Q for the quarter ended December 30, 2001 and incorporated by reference herein.) 10.0* Form of Officer Employment Agreement. (Filed as Exhibit 10.0 to the Company's Report on Form 10-Q for the quarter ended March 29, 1998 and incorporated by reference herein.) 10.1* Amended and Restated Supplemental Executive Retirement Plan. (Filed as Exhibit 10.1 to the Company's Report on Form 10-Q for the quarter ended March 31, 2002 and incorporated by reference herein.) 10.2* Amended and Restated Economic Value Added Incentive Compensation Plan. (Filed as Exhibit 10.2 to the Company's Report on Form 10-Q for the quarter ended March 31, 2002 and incorporated by reference herein.) 10.3* Form of Change of Control Employment Agreements. (Filed as Exhibit 10.4 to the Company's Annual Report on Form 10-K for fiscal year ended June 27, 1993 and incorporated by reference herein.) 10.4(a)* Trust Agreement with an independent trustee to provide payments under various compensation agreements with company employees upon the occurrence of a change in control. (Filed as Exhibit 10.5 (a) to the Company's Annual Report on Form 10-K for fiscal year ended July 2, 1995 and incorporated by reference herein.) 10.4(b)* Amendment to Trust Agreement with an independent trustee to provide payments under various compensation agreements with company employees. (Filed as Exhibit 10.5 (b) to the Company's Annual Report on Form 10-K for fiscal year ended July 2, 1995 and incorporated by reference herein.) 10.5(a)* 1999 Amended and Restated Stock Incentive Plan. (Filed as Exhibit A to the Company's 1999 Annual Meeting Proxy Statement and incorporated by reference herein.) 10.5(b)* Amendment to Amended and Restated Stock Incentive Plan. (Filed as Exhibit 10.0 (b) to the Company's Report on Form 10-Q for the quarter ended September 26, 1999 and incorporated by reference herein.) 10.6* Amended and Restated Leveraged Stock Option Program. (Filed as Exhibit 10.4 to the Company's Report on Form 10-Q for the quarter ended March 31, 2002 and incorporated by reference herein.) 10.7* Amended and Restated Deferred Compensation Agreement for Fiscal 1995. (Filed as Exhibit 10.9 to the Company's Annual Report on Form 10-K for fiscal year ended July 2, 1995 and incorporated by reference herein.) 10.8* Deferred Compensation Agreement for Fiscal 1998. (Filed as Exhibit 10.11 to the Company's Annual Report on Form 10-K for fiscal year ended June 29, 1997 and incorporated by reference herein.) 10.9* Deferred Compensation Agreement for Fiscal 1999. (Filed as Exhibit 10.11 to the Company's Annual Report on Form 10-K for fiscal year ended June 28, 1998 and incorporated by reference herein.) 10.10* Deferred Compensation Agreement for Fiscal 2000. (Filed as Exhibit 10.12 to the Company's Annual Report on Form 10-K for fiscal year ended June 27, 1999 and incorporated by reference herein.) 10.11* Amended and Restated Deferred Compensation Plan for Directors. (Filed as Exhibit 10.00 to the Company's Report on Form 10-Q for the quarter ended December 26, 1999 and incorporated by reference herein.) 10.12* Amended and Restated Director's Leveraged Stock Option Plan. (Filed as Exhibit 10.3 to the Company's Report on Form 10-Q for the quarter ended March 31, 2002 and incorporated by reference herein.) 44Exhibit Number Document Description - ------ -------------------- 10.13* Agreement with Executive Officer. (Filed as Exhibit 10.2 to the Company's Report on Form 10-Q for the quarter ended December 27, 1998 and incorporated by reference herein.) 10.14* Executive Life Insurance Plan. (Filed as Exhibit 10.17 to the Company's Annual Report on Form 10-K for fiscal year ended June 27, 1999 and incorporated by reference herein.) 10.15(a)* Key Employees Savings and Investment Plan. (Filed as Exhibit 10.18 to the Company's Annual Report on Form 10-K for fiscal year ended June 27, 1999 and incorporated by reference herein.) 10.15(b)* Amendment to Key Employees Savings and Investment Plan. (Filed as Exhibit 10.1 to the Company's Report on Form 10-Q for the quarter ended December 31, 2000 and incorporated by reference herein.) 10.16* Consultant Reimbursement Arrangement. (Filed as Exhibit 10.19 to the Company's Annual Report on Form 10-K for fiscal year ended June 27, 1999 and incorporated by reference herein.) 10.17* Notice of Election for Fixed Price Cash Pay-Out Under Deferred Compensation Agreement by Frederick P. Stratton, Jr. dated January 3, 2002, and Approval of Compensation Committee dated January 15, 2002. (Filed as Exhibit 10 to the Company's Report on Form 10-Q for the quarter ended March 31, 2002 and incorporated by reference herein.) 10.18* Briggs & Stratton Product Program. (Filed herewith.) 12 Computation of Ratio of Earnings to Fixed Charges. (Filed herewith.) 21 Subsidiaries of the Registrant. (Filed herewith.) 23 Independent Auditors' Consent. (Filed herewith.) 99.1 Certification of Principal Executive Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002. (Filed herewith.) 99.2 Certification of Principal Financial Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002. (Filed herewith.) * Management contracts and executive compensation plans and arrangements required to be filed as exhibits pursuant to Item 14 (c) of Form 10-K. 45
| Exhibit Number | Document Description | |
| 3.1 | Articles of Incorporation. | |
(Filed as Exhibit 3.2 to the Company’s Report on Form 10-Q for the quarter ended October 2, 1994 and incorporated by reference herein.) | ||
| 3.2 | Bylaws, as amended and restated June 14, 2001. | |
(Filed as Exhibit 99 to the Company's Report on Form 8-K dated June 14, 2001 and incorporated by reference herein.) | ||
| 3.2 (a) | Amendment to Bylaws Adopted by Resolution of the Board of Directors on April 21, 2004. | |
(Filed as Exhibit 3.2 to the Company’s Report on Form 10-Q for the quarter ended March 28, 2004 and incorporated by reference herein.) | ||
| 4.0 | Rights Agreement dated as of August 7, 1996, between Briggs & Stratton Corporation and Firstar Trust Company which includes the form of Right Certificate as Exhibit A and the Summary of Rights to Purchase Common Shares as Exhibit B. | |
(Filed as Exhibit 4.1 to the Company’s Registration Statement on Form 8-A dated as of August 7, 1996 and incorporated by reference herein.) | ||
| 4.0 (a) | First Amendment to the Rights Agreement. | |
(Filed as Exhibit 4 to the Company’s Report on Form 10-Q for the quarter ended December 29, 2002 and incorporated by reference herein.) | ||
| 4.1 | Indenture dated as of June 4, 1997 between Briggs & Stratton Corporation and Bank One, N.A., as Trustee. | |
(Filed as Exhibit 4.1 to the Company’s Report on Form 8-K dated May 30, 1997 and incorporated by reference herein.) | ||
| 4.2 | Form of 7-1/4% Note due September 15, 2007 of Briggs & Stratton Corporation issued pursuant to the Indenture dated as of June 4, 1997 between Briggs & Stratton Corporation and Bank One, N.A., as Trustee. | |
(Filed as Exhibit 4.2 to the Company’s Report on Form 8-K dated May 30, 1997 and incorporated by reference herein.) | ||
| 4.3 | Resolutions of the Board of Directors of Briggs & Stratton Corporation authorizing the public offering of debt securities of Briggs & Stratton Corporation in an aggregate principal amount of up to $175,000,000. | |
(Filed as Exhibit 4.3 to the Company’s Report on Form 8-K dated May 30, 1997 and incorporated by reference herein.) | ||
| 4.4 | Actions of the Authorized Officers of Briggs & Stratton Corporation authorizing the issuance of $100,000,000 aggregate principal amount of 7-1/4% Notes due September 15, 2007. | |
(Filed as Exhibit 4.4 to the Company’s Report on Form 8-K dated May 30, 1997 and incorporated by reference herein.) | ||
| 4.5 | Officers’ Certificate and Company Order of Briggs & Stratton Corporation executed in conjunction with the issuance of $100,000,000 aggregate principal amount of 7-1/4% Notes due September 15, 2007. | |
(Filed as Exhibit 4.5 to the Company’s Report on Form 8-K dated May 30, 1997 and incorporated by reference herein.) | ||
| Exhibit Number | Document Description | |
| 4.6 | Indenture dated as of May 14, 2001 between Briggs & Stratton Corporation, the Guarantors listed on Schedule I thereto and Bank One, N.A., as Trustee, providing for 8.875% Senior Notes due March 15, 2011 (including form of Note, form of Notation of Guarantee and other exhibits). | |
(Filed as Exhibit 4.9 to the Company’s Registration Statement on Form S-3 filed on July 3, 2001, Registration No. 333-64490, and incorporated herein by reference.) | ||
| 4.7 | Form of Supplemental Indenture dated as of May 15, 2001 between Subsequent Guarantors (Generac Portable Products, Inc., GPPD, Inc., GPPW, Inc. and Generac Portable Products, LLC), Briggs & Stratton Corporation, and Bank One, N.A., as Trustee. | |
(Filed as Exhibit 4.10 to the Company’s Registration Statement on Form S-3 filed on July 3, 2001, Registration No. 333-64490, and incorporated herein by reference.) | ||
| 4.8 | First Supplemental Indenture dated as of May 14, 2001 between Briggs & Stratton Corporation and Bank One, N.A., as Trustee under the Indenture dated as of June 4, 1997. | |
(Filed as Exhibit 4.12 to the Company’s Registration Statement on Form S-3 filed on July 3, 2001, Registration No. 333-64490, and incorporated herein by reference.) | ||
| 4.9 | Form of Indenture Supplement to Add a Subsidiary Guarantor dated as of May 15, 2001 among each Subsidiary Guarantor (Generac Portable Products, Inc., GPPD, Inc., GPPW, Inc. and Generac Portable Products, LLC), Briggs & Stratton Corporation, and Bank One, N.A., as Trustee. | |
(Filed as Exhibit 4.13 to the Company’s Registration Statement on Form S-3 filed on July 3, 2001, Registration No. 333-64490, and incorporated herein by reference.) | ||
| 10.0* | Form of Officer Employment Agreement. | |
(Filed as Exhibit 10.0 to the Company’s Report on Form 10-Q for the quarter ended March 29, 1998 and incorporated by reference herein.) | ||
| 10.1* | Amended and Restated Supplemental Executive Retirement Plan. | |
(Filed as Exhibit 10.1 to the Company’s Report on Form 10-Q for the quarter ended March 31, 2002 and incorporated by reference herein.) | ||
| 10.1 (a)* | Amendment to Supplemental Executive Retirement Plan. | |
(Filed as Exhibit 10.1 (a) to the Company’s Report on Form 10-K for fiscal year ended June 29, 2003 and incorporated by reference herein.) | ||
| 10.2* | Amended and Restated Economic Value Added Incentive Compensation Plan. | |
(Filed herewith.) | ||
| 10.3* | Form of Change of Control Employment Agreements. | |
(Filed as Exhibit 10.4 to the Company’s Annual Report on Form 10-K for fiscal year ended June 27, 1993 and incorporated by reference herein.) | ||
| 10.3 (a)* | Amendment to Change in Control Employment Agreements. | |
(Filed herewith.) | ||
| 10.4 (a)* | Trust Agreement with an independent trustee to provide payments under various compensation agreements with company employees upon the occurrence of a change in control. | |
(Filed as Exhibit 10.5 (a) to the Company’s Annual Report on Form 10-K for fiscal year ended July 2, 1995 and incorporated by reference herein.) | ||
| Exhibit Number | Document Description | |
| 10.4 (b)* | Amendment to Trust Agreement with an independent trustee to provide payments under various compensation agreements with company employees. | |
(Filed as Exhibit 10.5 (b) to the Company’s Annual Report on Form 10-K for fiscal year ended July 2, 1995 and incorporated by reference herein.) | ||
| 10.5 (a)* | 1999 Amended and Restated Stock Incentive Plan. | |
(Filed as Exhibit A to the Company’s 1999 Annual Meeting Proxy Statement and incorporated by reference herein.) | ||
| 10.5 (b)* | Amendment to Stock Incentive Plan. | |
(Filed as Exhibit 10.2 to the Company’s Report on Form 10-Q for the quarter ended March 30, 2003 and incorporated by reference herein.) | ||
| 10.5 (c)* | Amendment to Stock Incentive Plan. | |
(Filed herewith.) | ||
| 10.6* | Amended and Restated Premium Option and Restricted Stock Program. | |
(Filed herewith.) | ||
| 10.6 (a)* | Form of Stock Option Agreement under the Premium Option and Restricted Stock Program. | |
(Filed herewith.) | ||
| 10.6 (b)* | Form of Restricted Stock Award Agreement under the Premium Option and Restricted Stock Program. | |
(Filed herewith.) | ||
| 10.11* | Amended and Restated Deferred Compensation Plan for Directors. | |
(Filed herewith.) | ||
| 10.12* | Amended and Restated Director’s Premium Option and Stock Grant Program. | |
(Filed herewith.) | ||
| 10.12 (a)* | Form of Director’s Stock Option Agreement under the Director's Premium Option and Stock Grant Program. | |
(Filed herewith.) | ||
| 10.14* | Executive Life Insurance Plan. | |
(Filed as Exhibit 10.17 to the Company’s Annual Report on Form 10-K for fiscal year ended June 27, 1999 and incorporated by reference herein.) | ||
| 10.14 (a)* | Amendment to Executive Life Insurance Program. | |
(Filed as Exhibit 10.14 (a) to the Company’s Report on Form 10-K for fiscal year ended June 29, 2003 and incorporated by reference herein.) | ||
| 10.14 (b)* | Amendment to Executive Life Insurance Plan. | |
(Filed herewith.) | ||
| 10.15 (a)* | Key Employees Savings and Investment Plan. | |
(Filed as Exhibit 10.18 to the Company’s Annual Report on Form 10-K for fiscal year ended June 27, 1999 and incorporated by reference herein.) | ||
| 10.15 (b)* | Amendment to Key Employees Savings and Investment Plan. | |
(Filed as Exhibit 10.1 to the Company’s Report on Form 10-Q for the quarter ended December 31, 2000 and incorporated by reference herein.) | ||
| 10.15 (c)* | Amendment to Key Employee Savings and Investment Plan. | |
(Filed as Exhibit 10.1 to the Company’s Report on Form 10-Q for the quarter ended March 30, 2003 and incorporated by reference herein.) | ||
| 10.16* | Consultant Reimbursement Arrangement. | |
(Filed as Exhibit 10.19 to the Company’s Annual Report on Form 10-K for fiscal year ended June 27, 1999 and incorporated by reference herein.) | ||
| Exhibit Number | Document Description | |
| 10.17* | Briggs & Stratton Product Program. | |
(Filed as Exhibit 10.18 to the Company’s Annual Report on Form 10-K for fiscal year ended June 30, 2002 and incorporated by reference herein.) | ||
| 12 | Computation of Ratio of Earnings to Fixed Charges. | |
(Filed herewith.) | ||
| 21 | Subsidiaries of the Registrant. | |
(Filed herewith.) | ||
| 23.1 | Consent of Independent Registered Public Accounting Firm. | |
(Filed herewith.) | ||
| 31.1 | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
(Filed herewith.) | ||
| 31.2 | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
(Filed herewith.) | ||
| 32.1 | Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
(Furnished herewith.) | ||
| 32.2 | Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
(Furnished herewith.) | ||
| * | Management contracts and executive compensation plans and arrangements required to be filed as exhibits pursuant to Item 15(b) of Form 10-K. |
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